JPMorgan, Citi Kick Off Big Bank Reporting Season As Expectations Remain Muted Amid Economic Headwinds: Q2 Earnings Preview

The second-quarter reporting season kicks off in earnest with earnings reports from the biggest banks, and it remains to be seen if these companies set a positive tempo and reignite the buying interest in the market.

Earnings Growth To Trail Broader Market: With the bulk of the S&P 500 companies reporting over the next two weeks belonging to the financial sector, their earnings could have a big impact on the market. Among the financial sectors, those operating in the insurance and capital markets industries are expected to contribute significantly to the year-over-year earnings growth of the sector, financial data analytics company FactSet said in its weekly earnings insight report.

The financial sector per se is expected to report 4.3% year-over-year earnings growth, lower than the 8.8% growth predicted for the S&P 500 companies as a group. Within the capital markets industry, the investment banking & brokerage business may have seen a 53% jump in earnings growth. Financial exchanges & data and asset management & custody banks may have seen 10% growth each.

Key Metrics To Watch For: The strength of the fundamental business of lending and borrowing depends on the prevailing interest rates. The Fed funds rate, which is the benchmark against which all interest rates are pegged, remained at a 22-year high of 5.25%-5.50%.

“The interest rate environment remained a marginal negative in the second quarter, albeit slightly less so than in the first,” said Sean Ryan, VP for the banking and specialty finance sector at FactSet. The analyst said other comprehensive income may have seen further losses due to the 10-year Treasury yield rising 17 basis points in the June quarter.

Provisions may increase, denting the bottom line as the Fed’s stress results released in late June showed that, the commercial and industrial loan loss rates may increase to 8.1% in 2024 from 6.7% last year.

Sluggish loan growth may have dented net interest income to some extent, he said, adding that “the bottoming process for net interest margins continues to play out, with another tranche of banks likely to post their first increases of this cycle, and
more likely to guide to future increases.”

Non-interest revenue may have remained mixed, Factset said. WTW's Quarterly Deal Performance Monitor showed that the M&A market in North America remained challenging, with acquirers underperforming their regional index by -7.7%, marking the sixth consecutive quarter that buyers have lagged behind industry peers.

FactSet said mortgage banking may have benefitted from higher origination activity, including refinancing notwithstanding the slightly higher interest rates. Wealth and asset management may have benefitted from the 3.9% gain posted by the S&P 500 during the quarter, although was smaller than the first quarter’s 10.2% gain.

The Earnings Schedule:

Friday:

JPMorgan Chase & Co. JPM
Citigroup Inc. C
Wells Fargo & Company WFC
Bank of New York Mellon Corporation BK

Monday:

Goldman Sachs Group, Inc. GS

Tuesday:

Bank of America Corporation BAC
Morgan Stanley MS

Here’s a rundown on expectations for the big banks:

	Q2 EPS Consensus	Y-o-Y Change	Q-o-Q Change	Q2 Revenue Consensus	Y-o-Y Change	Q-o-Q Change
JPMorgan	$4.19	(-11.8%)	(-5.6%)	$42.34B	(-0.10%)	(-0.5%)
Citi	$1.39	+4.5%	(-12.20%)	$20.07B	+3.3%	(-4.9%)
Well Fargo	$1.29	+3.2%	+7.5%	$20.29B	(-1.2%)	(-2.7%)
Goldman	$8.36	+171.4%	(-27.8%)	$12.47B	+14.4%	(-12.2%)
BofA	80 cents	(-9.1%)	(-3.6%)	$25.22B	nearly flat	(-2.9%)
Morgan Stanley	$1.65	+33.1%	(-18.3%)	$14.31B	+9.4%	(-5.5%)

Financial Stock Moves: The Invesco KBW Bank ETF KBWB, an exchange-traded fund that tracks the performance of the KBW Bank Index, has gained a mere 0.5% in the second quarter, underperforming the broader market. The ETF is up about 15.3% for the year-to-date period.

In pre-market trading on Friday, the ETF rose 0.64% to $56.20, according to Benzinga Pro data.

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