JPMorgan, Citi, Morgan Stanley and Wells Fargo kick off banking earnings season in choppy waters
By Steve Gelsi
As bank stocks face a challenging economic environment, their underlying earnings will remain relatively healthy, at least for now
JP Morgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and Morgan Stanley kick off the third-quarter banking earnings season on Friday, Oct. 14 amid some of the toughest economic times in at least a decade.
Despite a plethora of woes facing big banks, from inflation and recession to the health of European banking giant Credit Suisse AG (CSGN.EB), Wall Street analysts have not drastically reduced their outlook for benefits for the group.
Weakness in the sector’s stock prices comes amid a slowdown in investment banking, layoffs at mortgage units and lower demand for auto and real estate finance due to rising interest rates in 2022.
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Dave Wagner, portfolio manager and analyst at Aptus Capital Advisors, which manages the Optus Small Cap Value ETF (OSCV) and the Aptus Collared Income Opportunity ETF (ACIO), said negative sentiment overwhelmed banks, even though they continue to benefit from an increase in interest rates.
“People don’t understand, there’s always a loan demand out there,” Wagner said. “Banks can still benefit from higher average yields and excess liquidity put back to work.”
But the bad news continues to pile up around the banks, with fresh reports of how Morgan Stanley (MS) and Bank of America (BAC) are part of the banking syndicate set to lose $500 million by providing debt for the acquisition of Twitter by Elon Musk for 44 billion dollars. Inc. (TWTR), as reported by 9fin.
Shares of JPMorgan Chase (JPM) are down 33% in 2022, while the Dow Jones Industrial Average is down 19.3%. and the S&P 500 fell 23.6%. Citigroup is down 30.2% so far in 2022, while Morgan Stanley (MS) is down 20% and Wells Fargo (WFC) is down 13%.
After JPMorgan, Citigroup, Morgan Stanley and Wells Fargo on October 14, Bank of America Corp. (BAC) is expected to report third-quarter earnings of 78 cents per share and revenue of $23.56 billion on Oct. 17. Goldman Sachs Group Inc. (GS) is on track to report third-quarter earnings of $7.76 per share and revenue of $11.38 billion on Oct. 18.
As the largest player by market capitalization and group indicator, analysts expect JP Morgan Chase & Co. (JPM) to earn $2.92 per share on revenue of $32.1 billion. , as estimated by FactSet.
Wall Street will be pleased to hear JPMorgan Chase’s views on the economic outlook amid steep losses in stock and bond markets as investors grapple with moves by central bankers around the world to try control inflation by raising interest rates.
JPMorgan Chase CEO Jamie Dimon signaled some strength in the banks during his recent Capitol Hill barbecue with other bank CEOs after warning earlier this year of an approaching economic storm.
See:Bank CEOs push back on capital requirements at Capitol Hill hearings
Analysts and investors will be watching how much money JPMorgan and other banks will set aside to boost reserves in the event of an economic downturn.
Although forecasts of recession and market volatility puzzled the financial world during the third quarter, bank earnings projections remained relatively stable.
JPMorgan Chase’s current third-quarter analyst estimate of $2.92 per share fell 4 cents per share from July’s $2.96 per share, but remains above the estimate of 2 cents, $80 per share as of March 31, according to FactSet data on historical changes in analyst estimates. .
With a business that is more reliant on investment banking, Goldman Sachs Group’s current earnings target of $7.76 per share is lower than the $10.19 per share expected as of March 31.
Morgan Stanley’s earnings estimate as of March 31 was $1.85, down from $1.52 currently, according to FactSet.
Citigroup is currently expected to earn $1.48 per share, down from $1.69 per share on March 31. Sentiment has improved slightly for Wells Fargo, which is now expected to earn $1.10 per share from $1.06 per share on March 31. of America to earn 78 cents per share, up from 84 cents per share on March 31.
Investors will likely be on the lookout for potential headwinds in loan growth and credit quality in the banking sector, as well as any signals of stress in Credit Suisse’s banking system.
However, Credit Suisse rebounded 8% on Friday after the bank pulled off a show of force by buying up to $3 billion of its own debt.
Federico Baradello, founder and CEO of private securities platform Finalis, said he thought concerns about Credit Suisse were overblown given that the Swiss government has put in place a backstop for the bank.
“U.S. bank balance sheets are fundamentally more liquid today than they were during the 2007-08 financial crisis,” Baradello said. “The bottom line…is that there is ‘still a lot of value’ at Credit Suisse in terms of the sum of its parts,” some analysts said.
Putting a positive spin on weak equity performance, Deutsche Bank analyst Matt O’Connor said he expects strong third-quarter results, driven by net interest income and loans , with solid credit quality.
O’Connor said in a research note this week that Deutche Bank remains the most posted of JPMorgan and Wells Fargo, along with regional banks (CFG) and M&T Bank Corp. (MTB).
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