Big Banks Kick Off Earnings Tuesday as Higher Interest Rates Reshape Their Profits
NEW YORK — Four of the six largest U.S. banks report third-quarter results on Tuesday, opening an earnings season that will show how the Federal Reserve’s first interest-rate increase in more than three years is reshaping Wall Street’s profits.
JPMorgan Chase, Citigroup, Wells Fargo and Goldman Sachs are all expected to post higher earnings than a year ago, according to LSEG estimates compiled by Reuters, with JPMorgan leading at an estimated $5.94 per share, up 17 percent from $5.07 a year earlier.
The tailwind is interest income. The Fed’s quarter-point rate increase in September, to a range of 3.75 to 4.00 percent, widened the spread between what banks earn on loans and pay on deposits. Analysts expect net interest income across the big banks to rise about 10 percent from a year earlier, according to Visible Alpha data cited by Reuters.
But profits are expected to fall from the second quarter’s exceptional haul, when all six banks served as bookrunners on SpaceX’s $85 billion IPO and trading revenue hit a record $51 billion, according to Morningstar. The bank stock index has dropped about 13 percent from its August high even as profit forecasts rose, a sign investors doubt the good times can last.
Trading desks face a tough comparison. Revenue is expected to rise a healthy 12 percent from a year ago but cool sharply from last quarter’s 36 percent surge, Reuters reported. Goldman Sachs chief executive David Solomon has already warned investors to expect a muted quarter, with fixed-income trading softer even as equities stay strong.
Investment banking shows the widest split. JPMorgan expects fees and trading revenue to grow in the mid-to-high teens, while Bank of America has warned its investment banking fees could fall at least 10 percent, according to Reuters. Morgan Stanley executives say their deal pipeline remains robust as companies continue spending on artificial intelligence.
Credit quality, the perennial worry when rates rise, looks contained so far. The credit card delinquency rate fell for an eighth straight quarter to 2.85 percent, below its 2024 peak, Federal Reserve data show. Commercial real estate bears watching: Deutsche Bank research puts the troubled-loan rate on securitized property debt at 12 percent, though loans banks hold directly look healthier at around 4 to 5 percent, according to Morningstar.
Citigroup finance chief Gonzalo Luchetti said last month the bank expects returns slightly above its 11 percent target and plans larger stock buybacks, while Wells Fargo’s finance chief said loan growth is running better than forecast, Reuters reported.
Bank of America and Morgan Stanley report later in the week. Beyond the numbers, investors will listen for what chief executives say about the economy: with the 10-year Treasury yield near 5.3 percent and oil around $100 a barrel, bank earnings double as a health check on American consumers and businesses.