U.S. bank earnings face test from rising rates
Major U.S. banks report third-quarter results October 13 and 14, with investors weighing forecasts for higher profits against concerns that rising Treasury yields could slow lending and dealmaking and increase deposit costs. For JPMorgan, prediction markets price a 64% chance that third-quarter investment banking fees exceed $2.9 billion, but just 7% that they top $3.5 billion, showing expectations become more cautious at higher thresholds.1
This brief is being refreshed as the reporting or market odds change.
TL;DR
- The key tension is strong expected year-over-year earnings growth versus uncertainty about whether higher rates will constrain lending, dealmaking or raise banks’ funding costs.1
- For JPMorgan investment banking fees, prediction markets assign much lower odds to clearing $3.5 billion than $2.9 billion, reflecting a higher bar for a larger result.
Still to come
- What investment banking fees and trading revenue will each bank report for the third quarter?
- Will executives describe deposit costs, loan growth or credit quality as worsening amid higher rates?
- Will banks report active deal pipelines and give evidence that delayed IPOs or other transactions can move forward in the fourth quarter?
Results from JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo are due October 13, followed October 14 by Morgan Stanley and Bank of America. Analysts expect profits at the six largest U.S. lenders to rise by as much as 20% year over year, with stronger investment banking and trading revenue. But the KBW Bank Index fell 6% in the third quarter and stood 13% below its August peak as Treasury yields climbed, sharpening questions about whether higher rates will weigh on lending, deal activity and funding costs.1
On October 9, prediction markets put JPMorgan’s chance of reporting more than $2.9 billion in third-quarter investment banking fees at 64%, compared with 38.5% for more than $3.2 billion and 7% for more than $3.5 billion. That threshold pattern suggests traders see a more substantial hurdle at the higher figures; it is a market view on JPMorgan’s fees, not a measure of the outlook for all six banks. JPMorgan’s co-president said last month that fees and trading revenue were expected to rise by a mid-to-high-teens percentage from a year earlier.12
The company outlooks are not uniform. Bank of America CEO Brian Moynihan said the bank expected investment banking fees to fall at least 10% in the quarter, while JPMorgan anticipated growth. Reuters also reported that higher rates slowed capital-markets activity late in the quarter and contributed to late-September IPO delays for Oura and SB Energy. Investors will look for executives’ updates on whether deal pipelines remain active and transactions can proceed into the fourth quarter.13
The earnings reports will also test whether higher yields are feeding through to deposit costs, loan growth or credit quality. Cheryl Pate of Angel Oak Capital Advisors said she did not expect major deposit outflows or a drastic rise in deposit costs; she also said banks had reduced securities-portfolio duration since the 2023 banking crisis. Investors will be watching the banks’ results and guidance next week for evidence on those risks, rather than relying on headline profit growth alone.145
Sources
AI-generated from the linked reporting and prediction-market data. Market prices reflect traders’ expectations and can change.