Top Banks to Restore or Destroy Confidence

Sentiment around banks is exceptionally cautious this time, focusing on how the US banking system coped with the collapse of three regional banks last month.

Restoring Confidence Or Adding to Fears

US major banks will provide the unofficial start of Q1 earnings season with the opportunity to restore confidence in the banking system if the reported numbers show stability. The focus is likely to be on deposits and loan growth. The relative position of deposits will be seen as a general gauge of people's confidence in banks, and if banks report relatively limited outflows or a return of inflows, it could reassure investors. Reports have also suggested that banks are tightening lending in the current environment, which could weigh on economic growth so that major bank lending trends could be pivotal for future expectations for the US economy.

JPMorgan Has Provisioned A Lot

The CEO of JPMorgan, Jaime Dimon, has been the most outspoken about the risks of an impending recession, and the bank has been provisioning heavily recently. The trend is expected to continue and impact earnings, but the bank is also expected to benefit from higher net interest income, which could boost the bottom line. Interest is also likely on the trading profit, as the bank could be affected by investors moving to safety. Earnings are expected to be slightly lower at $3.41 on improved revenues of $36.1B.

Wells Fargo's Plan-for-Worse in Focus

As one of the major banks, Wells Fargo has been one of the beneficiaries of depositors' move from smaller banks to more secure institutions. The bank is expected to confirm that it will resume buybacks, as communicated in the Q4 report. Focus will likely be on commentary about the economic outlook after the CEO, Charles Scharf, said he was planning for a worse economy this year. Earnings are expected to increase to $1.13 on $20.1B in revenue.

Citigroup Might Benefit from Job Cuts

The recent press speculated that the bank could cut "hundreds" of jobs in its investment and mortgage operations, so attention will likely be on potential cost-cutting measures. The bank has also reported increasing delinquencies in its monthly Master Trust reports. Focus will likely be on regional performance, as the US banking division was the only one to see a drop in revenue in the last quarter. Earnings are expected to rebound to $1.64 on improved revenues of $20.1B.

Wells Fargo Might Have Bottomed (For Now)

The share price of Wells Fargo tapped the golden pocket of $35 and reversed on March 24, following the completion of a flag pattern. Bulls must reclaim each one of the Fibonacci resistances for a chance at $60, with the 50% around $40 being the first major milestone. 

If the zone between $40-$45 acts as a resistance in the event of additional advances, the probability of a continuation towards $30 will increase. Typically, ending corrections contain five waves, with the downward leg down from $51 appearing to have so far completed only four.

Source: Spreadex / WELLS FARGO

Key Takeaways

US banks' Q1 earnings season will provide an opportunity to restore confidence in the banking system. The focus will be on deposits and loan growth as investors seek reassurance that people are confident in banks. Citigroup might benefit from job cuts, while Wells Fargo is expected to confirm buybacks and address the economic outlook following CEO Charles Scharf's warning of a worse economy in 2021. JPMorgan has provisioned heavily already and may benefit from higher net interest income.