Higher rates are expected to lead to a jump in losses on banks' bond portfolios and contribute to funding pressures as institutions are forced to pay higher rates for deposits.
KBW analysts Christopher McGratty and David Konrad estimate banks' per-share earnings fell 18% in the third quarter as lending margins compressed and loan demand sank on higher borrowing costs."The fundamental outlook is hard near term; revenues are declining, margins are declining, growth is slowing," McGratty said in a phone interview.
analysts led by Betsy Graseck said in an October 2 note that the"estimated impact from the bond rout in 3Q is more than double" losses in the second quarter.Still, others including KBW and UBS analysts said that other factors could soften the capital hit from higher rates for most of the industry. "We expect loan loss provisions to increase materially compared to the third quarter of 2022 as we expect banks to build up loan loss reserves," RBC analyst Gerard Cassidy wrote in a Oct. 2 note.Still, bank stocks are primed for a short squeeze during earnings season because hedge funds placed bets on a return of the chaos from March, when regional banks saw an exodus of deposits, UBS analyst Erika Najarian wrote in an Oct. 9 note.
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