Darren415
Three big Wall Street banks are set to report Q3 earnings on Friday, giving investors a window into how the sector is dealing with elevated interest rates and continued muted capital markets activity.
JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C), and Wells Fargo (NYSE:WFC) post on Friday. Bank of America (NYSE:BAC) and Goldman Sachs (NYSE:GS) report on Tuesday, and Morgan Stanley (NYSE:MS) rounds out the lot on Wednesday.
Morgan Stanley analyst Betsy Graseck is expecting “weakish” bank performance in Q3 earnings. Investors have been more optimistic about banks since the most recent industry conference and that raises the bar for bank earnings.
“We don’t think the group clears it,” Graseck wrote in a note to clients. “Expect NIMs (net interest margins) under pressure for longer, not much expense flex until at least January, and weak loan growth.”
Focus on charge-offs: Net charge-offs are expected to portray aanother weak spot as delinquencies return to higher, and more normal levels, after interest rates have climbed steeply in the past year. The four biggest U.S. banks are expected to see their net charge-offs — the amount they write down for bad debt — jump to $5.3B in Q3, Bloomberg estimated. That’s the highest for JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC), and Bank of America (BAC), combined, since Q2 2020.
Graseck is the most optimistic about Wells Fargo (WFC) and JPMorgan Chase (JPM) and least optimistic about Goldman Sachs (GS). For WFC, she sees higher fees, lower expenses, and lower provisions for loan losses. The Morgan Stanley analysts’ Q3 EPS estimate for the bank is 6% above the Wall Street consensus.
Bullish on JPMorgan: Her EPS estimate for JPM is 3% above the consensus estimate due to higher fee income and “slightly higher” net interest income. “One of the main reasons we’re bullish into earnings is we still think JPM is more asset sensitive than the Street expects, which could come through in improved guidance,” she said.
Graseck expects Goldman’s (GS) Q3 EPS to come in 31% below the Street estimate on lower trading revenue, lower investment-banking revenue, and another quarter of asset management markdowns.
The market is focused on three headwinds for large banks: the trajectory for NII in 2024, the impact of the Basel III endgame, and potential downside from credit and reserve increases, said Goldman Sachs analyst Richard Ramsden in his note on Q3 bank earnings.
He expects big banks’ results to start showing a recovery in capital markets activity, “which could be a source of upside for 2024.” With the rising interest rates, Q3 NIMs are expected to drop 6 basis points from Q2 due to higher deposit costs, he added.
As for the proposed Basel III endgame rules, “We think the focus will now shift to whether banks will curtail capital returns/balance sheet growth,” he said. He has reduced his stock buyback estimates for 2024 and 2025.
Top picks have de-risked: Ramsden’s top picks are JPMorgan (JPM) and Wells Fargo (WFC), “as we believe that they have de-risked their NIM guides more than peers and thus we see less risk of guidance downgrades from higher deposit costs.” In addition, JPM may reap more revenue synergies from its First Republic deal than originally expected, he said.
Wells Fargo (WFC), meanwhile, should see improving margin trends due to greater operating leverage heading into 2024 given its elevated expense base, Ramsden noted.
UBS analyst Brennan Hawken recently downgraded Morgan Stanley (MS) to Neutral from Buy, citing headwinds of deposit sorting/yield seeking, competition for talent, and a still challenging revenue environment.
Another vote for JPMorgan: CFRA analyst Kenneth Leon thinks that JPMorgan (JPM) and Morgan Stanley (MS) have the best chance of turning in better-than-expected performance in Q3 and a “more promising outlook for Q4 2023.” That will be more challenging for Bank of America (BAC), he added. Meanwhile, Citigroup (C) is working through a multiyear restructuring. Goldman Sachs (GS) too will get attention as it divests non-core businesses (such as Greensky) and will “convey confidence on growing its core franchise,” Leon said.
When it comes to their track records in beating the EPS consensus, Wells Fargo (WFC) has topped the EPS consensus in each of the last 12 quarters. Bank of America (BAC) and Morgan Stanley (MS) have each missed the EPS consensus only once, JPMorgan (JPM) twice; and Goldman Sachs (GS) and Citigroup (C) three times.
Earnings Calendar:
- Friday, Oct. 13: BlackRock (BLK), Citigroup (C), JPMorgan Chase (JPM), PNC Financial (PNC), Wells Fargo (WFC).
- Monday, Oct. 16: Charles Schwab (SCHW), HDFC Bank (HDB)
- Tuesday, Oct. 17: Bank of America (BAC), Bank of New York Mellon (BK), Goldman Sachs (GS).
- Wednesday, Oct. 18: (premarket) Ally Financial (ALLY), Citizens Financial Group (CFG), Commerce Bancshares (CBSH), M&T Bank (MTB), Morgan Stanley (MS), Northern Trust (NTRS), State Street (STT); (after-hours) Discover Financial (DFS), First Horizon (FHN)
- Thursday, Oct. 19: (premarket) Truist Finanicial (TFC), Fifth Third Bancorp (FITB), KeyCorp (KEY), Webster Financial (WBS); (after-hours) Bank OZK (OZK)
- Friday, Oct. 20: American Express (AXP), Regions Financial (RF), Huntington Bancorporation (HBAN), Comerica (CMA).
- Tuesday, Oct. 24: (premarket) Old National Bancorp (ONB) (after-hours) Synchrony Financial (SYF)
- Thursday, Oct. 26: (premarket) First Citizens BancShares (FCNCA), New York Community Bancorp (NYCB), Popular (BPOP), Valley National (VLY); (after-hours) Capital One Financial (COF), SouthState (SSB)
- Friday, Oct. 27: (premarket) NatWest Group (NWG), Nomura Holdings (NMR), Woori Financial Group (WF); (after-hours) Credit Acceptance (CACC)
- Monday, Oct. 30: (premarket) HSBC (HSBC) (after-hours) Banco de Chile (BCH), SoFi Technologies (SOFI)
