JPMorgan Chase & Co. and Wells Fargo & Co. are set to kick off the U.S. bank earnings season on Friday, focusing on forecasts for net interest income (NII) following the Federal Reserve's recent rate cut—the first in four years. Analysts anticipate a decline in NII as banks face moderate loan demand and higher provisions for loan losses.
In previous years, rising interest rates bolstered NII, which is the difference between what banks earn on loans and what they pay on deposits. However, the recent shift in monetary policy is expected to pressure profit margins. Analysts predict JPMorgan's earnings per share (EPS) will drop by nearly 8% in the third quarter, while Wells Fargo's EPS is expected to fall around 14%.
Betsy Graseck of Morgan Stanley highlights that further rate cuts could impact interest income but may also stimulate borrowing and transactions. The Fed's anticipated cuts of 150 basis points by mid-2025 could reshape market dynamics, potentially leading to increased economic activity and lending.
Investment banking divisions are projected to see a recovery due to rising debt issuance and initial public offerings, although merger and acquisition activity remains subdued. Oppenheimer forecasts a 7% average increase in investment banking revenues across major banks, yet this figure falls short of historical levels.
As banks prepare for earnings reports, the focus will also be on trading revenues, which are expected to see slight declines, particularly at Goldman Sachs, where a 10% drop has been signaled. Overall, the upcoming earnings season will be closely watched as banks navigate the implications of a changing interest rate environment.