Item 1 of 2 A customer uses an ATM at a Bank of America branch in Boston, Massachusetts, U.S., October 11, 2017. REUTERS/Brian Snyder/File Photo
NEW YORK, July 10 (Reuters) – Major U.S. banks are expected to report stronger profits next week, driven by buoyant trading and a modest rebound in investment banking.
Sign up here.
“Things are looking good and we expect that most banks will beat expectations,” said Stephen Biggar, a banking analyst at Argus Research. “It is one of those quarters where no big surprises are expected and we are likely to see a continuation of trends.”
“We expect second-quarter investment banking revenues to be better than expected and management teams to point to pipelines building,” Betsy Graseck, a banking analyst at Morgan Stanley, wrote in a report published last week.
“We continue to expect the trading revenue to remain buoyant in the near future given the uncertain macroeconomic and geopolitical backdrop,” analysts at Goldman Sachs said.
Most of the major banks are expected to report a low-to-mid single digit percentage gain in net interest income (NII), or the difference between what they earn on loans and pay out for deposits.
Lenders are also expected to set aside smaller amounts for potential souring loans, as the financial health of consumers and businesses remains resilient.
Credit quality among consumer and commercial borrowers is still robust, and even though loan demand is muted, it is starting to improve, analysts say.
“One of the biggest questions is: how sustainable is this loan growth,” said Mike Mayo, an analyst at Wells Fargo. He sees industry loan growth rising to around 5%, higher than earlier estimates of 3%.
Banks are also expected to benefit from the deregulatory regime under U.S. President Donald Trump. Lenders recently aced the Federal Reserve’s stress test and showed enough capital to withstand possible adverse scenarios.
Here is what is likely to come from the six biggest U.S. lenders:
JPMorgan Chase
The largest U.S. lender is predicted to report a 5% increase in earnings per share, according to estimates compiled by LSEG. Investors will take note of the bank’s outlook on NII, loan growth and investment banking. Analysts are also watching for any developments in its work on stablecoins.
Bank of America
Bofa’s EPS is likely to inch up nearly 4% when it reports earnings on July 16, LSEG estimates showed. NII is estimated to be higher by nearly 7%. However, its investment banking fees are forecast to slide to about $1.2 billion, according to management commentary.
Citigroup
Analysts see Citigroup’s EPS improving by 5%, fueled by capital markets. Expenses and provisions may also exceed earlier estimates, Mayo said. Citi is his top pick.
Wells Fargo
Operating expenses will decrease slightly because of shrinking personnel costs, analysts at Raymond James said. Loan loss provisions are expected to remain flat versus the first quarter, while loan balances are expected to increase slightly, analysts said.
Goldman Sachs
The Wall Street giant is likely to see a nearly 11% increase in EPS, propelled by gains in investment banking and trading, analysts said.
Morgan Stanley
Morgan Stanley’s EPS is estimated to increase over 7%, with all eyes on management commentary on the burgeoning rebound for investment banking.
“After a relatively seamless CEO transition and a recalibration of strategic targets last January, CEO Ted Pick appears well-placed to flex franchise muscle and gain market share,” Ebrahim Poonawala, an analyst at Bofa wrote in a report.
Source: LSEG
Reporting by Nupur Anand in New York; Editing by Lananh Nguyen and Richard Chang
Our Standards: The Thomson Reuters Trust Principles.
