Big banks report next week as rising rates test profits
JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo report third-quarter earnings Tuesday, Oct. 13, with Bank of America and Morgan Stanley a day later. Their results show how borrowers and savers are holding up as Treasury yields sit near multidecade highs. Profits at the largest banks are expected to rise as much as 20% from last year.
The biggest U.S. banks open the third-quarter earnings season next week. JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo report on Tuesday, Oct. 13, and Bank of America and Morgan Stanley follow on Oct. 14, Reuters reported in a preview published Thursday.
Third-quarter profits at the largest banks are expected to rise as much as 20% from a year ago, helped by much stronger investment banking and trading revenue, and analysts expect no signs of deterioration in their loan books.
The main worry is interest rates. The Federal Reserve raised its key rate to a range of 3.75% to 4% in September, and the 10-year Treasury yield touched 5.33% on Oct. 1, its highest since 2002, Kalkine reported. Higher rates can lift what banks earn on loans, but they also raise what banks pay savers and can strain borrowers.
Bank stocks have already felt the pressure. The KBW Bank Index is down 13% from its August peak, Reuters reported. UBS analyst Erika Najarian said investors want proof that deal pipelines are healthy, loans are growing and deposit costs are under control.
Executives dropped hints at investor conferences last month. JPMorgan expects investment banking fees and trading revenue to rise by a "mid-to-high teens" percentage. Bank of America CEO Brian Moynihan warned of at least a 10% drop in investment banking fees, which sent his bank's shares sharply lower. Goldman Sachs CEO David Solomon told investors to expect a muted quarter, with a softer bond and currency trading business.
Wall Street analysts expect JPMorgan to earn $5.93 a share on revenue of $51.23 billion, MarketBeat reported. That compares with $5.07 a share a year ago, and JPMorgan has beaten the consensus forecast in each of its last eight quarters. Its call with analysts starts at 8:30 a.m. ET on Oct. 13.
The first bank reports land one day before September consumer price data, which is due Oct. 14, and the Fed meets again on Oct. 27-28.
"I'll be looking for any signs of credit stress in banks' forward guidance," Schwab's Alex Coffey said, pointing to loan-loss provisions and late payments as the numbers to watch.
What we know: Six of the largest banks report Oct. 13-14.
What we don't: Whether higher rates have started to hurt borrowers.
Where outlets agree Reuters and Kalkine both report that JPMorgan Chase, Goldman Sachs, Wells Fargo and Citigroup release third-quarter results on Oct. 13.
Where they differ Kalkine says deal-making has been busy with stocks hitting records, while Reuters says higher interest rates slowed capital markets activity late in the quarter.