NEW YORK. — The biggest US banks are expected to kick off the earnings season on a sour note this week due to falling interest rates, which may have pressured net interest margins enough to cause the sector’s first year-over-year earnings per share decline in three years.
While strength in mortgage banking and cheap valuations could provide support to the S&P 500 bank index, its performance depends on what reassurance executives provide on credit conditions, the outlook for loan growth and their ability to reduce deposit costs during their conference calls.
Tuesday brings third quarter profit reports from Citigroup Inc, Wells Fargo and Co, JPMorgan Chase & Co, and Goldman Sachs. Bank of America reports on Wednesday.
The biggest US banks will report a 1.2 percent decline in third-quarter earnings, while revenue is seen rising 0.9 percent, according to data aggregated by Refinitiv analyst David Aurelio. This would be the first profit decline since the same quarter in 2016, according to data from Factset.
“Overall it’s shaping up to be a pretty challenging quarter because of the net interest rate environment,” said Fred Cannon, director of research for Keefe, Bruyette & Woods in New York, citing the flattening and temporary inversion of the US Treasury 2-year/10-year yield curve during the quarter.
Bank profits depend heavily on net interest income, or the difference between the rate they charge for long-term loans and the rate they pay for short-term borrowing.
Executives from Citi, Wells Fargo and JPMorgan all cut their full-year forecasts for net interest income last month, citing macroeconomic concerns. – Reuters