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Key Takeaways:
- Recent uptick in rates might spell better times ahead for banks
- Credit loss provisions still expected to weigh, but cost-cutting has likely helped
- Housing market seen aiding Wells, while Citigroup’s
C credit card business stays in focus
A lethal combination of ultra-low interest rates, credit worries, a steep economic slowdown, and tough government regulations ganged up on big banks this year. Despite that, expectations for the group’s Q3 earnings performance are on the rise.
Granted, the numbers don’t look like something to throw a party over, with research firm FactSet predicting cumulative Financial earnings to fall 19.4% from a year ago. The good news is that those expectations look a lot sunnier than where analysts were back in June, when they predicted a Financials Q3 earnings cratering of 34.4%.
Why the improvement? For one thing, many banks benefit from the energetic capital markets and the trading revenue they provide. Second, low rates have their good side, encouraging more loan activity.
Some of the big banks leading the upward earnings expectations meter include JP Morgan Chase
The same goes for Citigroup (C), which, like JPM, is expected to report Q3 earnings early tomorrow. Those will be followed Wednesday morning by WFC.
Before zeroing in on individual banks, let’s scroll back for a broader view. Big banks haven’t performed well in the market this year, but they’ve generally done a great job setting aside money for possible credit losses and cutting costs. This could position most of them pretty nicely for any economic rebound once the pandemic passes.
That said, the credit
