Major US Banks Report Earnings

Major US banks are expected to report growing revenues as the outlook improves with reduced recession risks. Revenue expansion is expected despite challenges faced in the ongoing recovery from the banking crisis as investors consider provisions accumulated in prior periods.

Return to Profitability?

Banks should see revenues and profits rise as lower yields benefit their operations. However, performance is not uniform. JPMorgan forecasts 13% revenue growth to $38.1 billion, benefiting from First Republic Bank integration synergies and growth. Conversely, Bank of America may see a 2.3% revenue decline due to the lingering effects of unrealised losses on bond portfolio performance.

Treasury yields declining from 5% to 4% by year-end should help ease funding costs and securities losses for banks. This could reduce third-quarter net interest margin losses when deposit rates increased to curb outflows. With an anticipated soft landing, established provisions accumulated for a threatened recession may enable higher earnings growth or reverse provisions.

Areas of Major Banks' Focus

JPMorgan

JPMorgan shares reached new highs ahead of their earnings release, outperforming peers. Earnings are expected to fall for a third consecutive quarter to 3.34% despite projected revenue growth to $38.1 billion, as the First Republic integration is expected to weigh on the bottom line. Investors may prefer to scrutinise management commentary given previous recession warnings.

Wells Fargo

Wells Fargo's results are also forecast to show slowing earnings, reaching US$1.09 billion as revenue is expected to remain flat at US$19.6  billion year-on-year. The bank's commercial real estate portfolio will be of interest to assess whether benefits from lower interest rates can continue into 2024.

Bank of America

Bank of America may see the steepest earnings decline, nearly 20% to $0.76, despite a steady $24.5 billion revenue as it manages large bond exposures; faster Fed rate cuts could significantly aid its portfolio. The trajectory of the Fed rate cuts, and consequently the performance of its securities portfolio, will be crucial to the bank's near-term outlook.

Wells Fargo Departs Bottom After Pennant Pattern

Wells Fargo's stock price has likely ended a bullish pennant pattern at $37.50, suggesting the stock may continue its upward trend towards $60 and beyond as the consolidation phase seems to be concluding. A confirmed breakout past $51.50, the upper boundary of the flag, would imply a continuation to $55, then higher. Conversely, losing $47.50 may exert downward pressure to $43.70, bringing the pennant low and $35 into focus. This would suggest a larger flag pattern unless the upper trendline holds firm.

Source: SpreadEx

Key Takeaways

Major US banks are poised for revenue growth as the economy displays signs of improvement and easing recession risks. Despite varying performance levels, most banks are expected to benefit from lower treasury yields as they reduce funding costs. JPMorgan expects a revenue increase but a drop in earnings, while Wells Fargo predicts flat revenues, and Bank of America braces for an earnings decline but could benefit from interest rate cuts.