Big Banks Face Q4 Earnings Test Amid Rate Pressure

Quarter 4 Earnings Season Kicks Off

As the curtain rises on the fourth quarter earnings season, all eyes turn to the heavyweights of the American banking sector. JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC) are set to disclose their financial scorecards.

Investors, brace yourselves: though bank stocks saw a late-2023 rally on the back of anticipated rate cuts, this earnings period will reveal the impacts of persistently high-interest rates. Such an environment can sway deposit costs, shape net interest income, and alter the valuation of securities held for sale.

What to Watch For

Market gurus, including Morgan Stanley’s own Betsy Graseck, are forecasting a squeeze in net interest margins (NIM) this quarter. However, the pinch might just be temporary. We’re already seeing a cool-down in the battle for deposit pricing—those flashy rates for new CDs are dropping—which spells good news for NIM as we move into 2024.

But that’s not all that savvy observers should be keeping an eye on. The predictions for revenue, operating costs, credit quality, and whether banks can sustain their capital returns are equally important. And don’t get caught off guard by those one-off charges—like portfolio re-evaluations, final Basel III rule implementations, and FDIC reserve top-ups—that could throw a curveball in the earnings reports.

Bank Earnings Face-Off

It looks like the big banks may not quite match last year’s earnings, with one notable exception: JPMorgan (JPM) might just buck the trend with a slight year-over-year uptick in Q4’s earnings per share.

On the flip side, Goldman Sachs (GS) is also hinting at higher earnings per share. But keep in mind that their comparison point from last year included some hefty one-time charges. In the broader banking landscape, signs of vitality are emerging—there’s a jump in commercial and industrial loans after a lull, and the real estate lending sector is starting to gain some momentum again.