J.P.Morgan Chase & Co., Wells Fargo Co., Citigroup Inc. and Bank of America Corp. will kick off fourth-quarter bank earnings reporting season next Friday as the banks face a choppy economic environment.
While rising interest rates have allowed banks to generate more net interest income from loans, fears of economic slowdown have been weighing on the sector as it gets more expensive to borrow money and fewer transactions such as home mortgages get done. “It’s tempting to get more positive given stocks are already down sharply, inflation seems to be slowing and Fed rate hikes may be coming to an end,” Deutsche Bank analyst Matt O’Connor said in a research note on Friday. “But our gut is that stocks will set new lows and fully price in a U.S. recession suggesting there’s more risk from here.”
Meanwhile, economic storm clouds are casting a cloud over the banking sector despite a strong December U.S. jobs report. Also on next Friday, Bank of America BAC is on deck to report earnings of 78 cents a share on revenue of $24.3 billion, Citigroup C is expected to post earnings of $1.19 a share on revenue of $17.93 billion and Wells Fargo is seen earning 60 cents a share on $20 billion in revenue.
Brian Mulberry, client portfolio manager at Zacks Investment Management, told MarketWatch that over the course of the coming year megabanks may benefit from an uptick in merger and acquisitions, both for providing debt as well as other banking services, as corporate clients grow accustomed to higher interest rates that are returning to historical norms after a decade of central bank monetary stimulus.
Big banks are also much better prepared for a recession than they were in the Global Financial Crisis of 2008.Ahead of earnings reports next week, Wall Street analysts have been tweaking some of their ratings on the major banks.