"Big Three" US Banks Brace for Earnings Season

US banks would be expected to gain on higher interest rates, but fears of a recession have increased provisioning and could keep hurting profits.

Increasing pressure at the bottom line

The "big three" of banks in the US unofficially start earnings season, which is expected to be marked by increased costs and expectations of slower economic growth. Banks have already reported an increase in drawdowns from deposits as US consumers feel the pinch of inflation. Meanwhile, credit card debt hit a record high. While higher debt rates would imply higher revenues for banks, the corresponding increase in delinquency rates puts pressure on the bottom line as banks must be ready for more Americans to be unable to make payments if the country slips into recession.

JPMorgan CEO sounds alarm on recession risk

CEO of JPM Jamie Dimon has been one of the more outspoken regarding the dangers to the banking industry when it comes to a recession, warning that the Fed will continue to raise rates more than the market expects. Focus likely to be on Net Interest Income and the amount set aside for provisions. Last quarter, the bank put aside over half a billion for potential losses and could do the same this quarter. Earnings are expected to slip marginally to $3.08 on increased revenue of $34.4B.

Wells Fargo's earnings likely hit by CFPB settlement

Earnings are expected to be marred by the recent settlement with the CFPB, which included paying up to $3.7B in fines and reimbursements over loan mismanagement. After divesting its correspondence business, Wells Fargo also recently announced new initiatives to focus on home lending. The company saw NII rising, but the issues above are likely to weigh on the bottom line. Additionally, attention to how much the bank can set aside in provisions. Earnings are expected to drop to $0.60 on slightly better revenues of $20.0B.

Bank of America goes on the defensive but remains optimistic

CEO Brian Moynihan has been more optimistic than his colleague at JPMorgan. After the last earnings report, he played up customer growth and dynamism in the market. Nevertheless, the bank did step up its provisioning by the tune of $375M. NPLs dropped in the prior quarter, so focus on whether that situation will reverse. Earnings are expected to slip to $0.77 on largely flat revenue of $24.2B.

JPM ended correction, but BAC further from mean YoY

Year-on-year, the "big three" remain largely negative, but JPM (black) appears biased up more than its peers, especially since it left a pennant printed on the charts. Despite WFC (red) improving to -15% in early December, the immediate fall came in in five waves, suggesting another leg down before more clarity can be extracted from price action. BAC (blue), on the other hand, was and remains the worst performer, it makes a better case from upside as it's further from its mean. However, with a similar pattern with WFC, this remains to be seen.

Key Takeaways

The "big three" US banks are bracing for earnings season, which is expected to be marked by increased costs and slower economic growth. Banks have reported deposit drawdowns due to inflation, and credit card debt has reached a record high. This could lead to higher revenues and delinquency rates, which puts pressure on the bank's bottom line. JPMorgan CEO Jamie Dimon has warned of the dangers of a recession for the banking industry, Wells Fargo's earnings are likely to be affected by a recent CFPB settlement, and Bank of America is optimistic but has stepped up its provisioning.