As US bank profits drop, focus shifts to interest income outlook
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[April 10, 2024] By
Nupur Anand
NEW YORK (Reuters) - As U.S. banking giants prepare to report slightly
lower first-quarter profits, investors will focus on how much more
income executives expect from interest payments this year.
JPMorgan Chase is likely to post a 4% drop in earnings per share (EPS)
from the year-ago quarter on Friday, analysts estimated in an LSEG
survey. Declines of 35% and 11% are forecast for Citigroup and Wells
Fargo, respectively.
Goldman Sachs is expected on Monday to post a 13% slide. On Tuesday,
Bank of America is likely to show a 18% decline, while Morgan Stanley is
seen announcing a 2% drop, analysts said.
Analysts are weighing how the path of U.S. interest rates will bolster
banks' net interest income (NII), or the difference between what lenders
earn on loans and pay out for deposits.
"This is the overarching theme this quarter and we are likely to see an
upside for earnings," said Kenneth Leon, research director at CFRA
Research.
Banks have reaped record profits in recent quarters as the Federal
Reserve started raising interest rates in March 2022 to tame inflation.
Their NII outlook is closely watched as a barometer for future earnings.
Executives' commentary this quarter will be more closely scrutinized as
the market scales back expectations for the Fed to cut rates three times
this year from earlier estimates of six.

JPMorgan, Bank of America and Wells Fargo could benefit from
higher-for-longer rates that could boost their NII forecasts, Morgan
Stanley analysts led by Betsy Graseck wrote in a note.
But elevated rates could also strain the finances of consumers who are
increasingly falling behind on loan payments, prompting lenders to set
aside more money to cover potential losses.
"There could be an uptick in delinquencies and the consumer-led growth
could moderate, but I do not expect it to impact earnings in a big way,"
said Chris Marinac, director of research at financial adviser Janney
Montgomery Scott.
Banks serving both retail customers and corporations have fared slightly
better in the first quarter than rivals focused on Wall Street
dealmaking which has been in the doldrums for several quarters.
Citigroup, Wells Fargo and JPMorgan have been the best-performing stocks
so far this year in the S&P 500 banks index. So far in 2024, Citigroup
shares are up 19.9% as of Tuesday's close, Wells Fargo is about 17%
higher and JPMorgan has risen nearly 16% against a roughly 13% gain for
the S&P 500 banks index.
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A view of the exterior of the JP Morgan Chase & Co. corporate
headquarters in New York City May 20, 2015. REUTERS/Mike
Segar/Files/

Mergers and acquisitions have shown signs of rebounding in the first
quarter after falling to their lowest level in 10 years globally in
2023. Bankers have expressed more optimism about a recovery this
year.
"The dialogue is going to be very strong this quarter for Wall
Street banks," said KBW analyst David Konrad, referring to merger
talks. "Capital market activity is picking up and it is going in the
right direction."
A revival would boost earnings at Goldman Sachs and Morgan Stanley,
whose earnings are more reliant on investment banking revenue.
The outlook for trading will also be an important indicator, Graseck
said.
JPMorgan, the largest U.S. lender, said in February that its markets
revenue could decline 5% to 10% in the first quarter.
At Citigroup, investors are awaiting updates from CEO Jane Fraser on
her growth strategy after she started a sweeping reorganization in
September and laid off 5,000 employees through the end of the first
quarter.
"This is time for progress," said Marinac, expressing optimism about
bank prospects. "I don't think there was much to expect in the first
year, but we're through that first year and I think there should be
some modest progress."
Leadership will also be in focus at JPMorgan, where the board has
identified potential successors to CEO Jamie Dimon, paving the way
for an eventual leadership transition at the largest U.S. bank.
Elsewhere, investors are tracking Wells Fargo's progress to meet
government demands to fix its problems and lessen its regulatory
punishments, including an asset cap that limits its growth.
(Reporting by Nupur Anand in New York; Editing by Lananh Nguyen and
Richard Chang)
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