Bank earnings preview: What finance pros want to see
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As consumers and Wall Street investors eye this week’s list of bank earnings for either a gauge on their dollar or direction of market volatility, professionals in the finance sector have concerns up and down the balance sheet.
Ahead of quarterly financial reports Friday from BlackRock, Citigroup, JPMorgan Chase, PNC Financial and Wells Fargo, FOX Business surveyed a group of finance experts for their take on the upcoming earnings releases and what they will be looking for in the data.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| BLK | BLACKROCK INC. | 1,036.73 | +8.59 | +0.84% |
| C | CITIGROUP INC. | 69.82 | +0.88 | +1.28% |
| JPM | JPMORGAN CHASE & CO. | 248.55 | +3.79 | +1.55% |
| PNC | THE PNC FINANCIAL SERVICES GROUP INC. | 210.07 | +4.32 | +2.10% |
| WFC | WELLS FARGO & CO. | 75.96 | +1.13 | +1.51% |
Jeff Buchbinder, chief equity strategist for LPL Financial, said, "Investors may be surprised with how the big banks held up in the first quarter."
"But the problem is the lending and profit environment over the next several quarters, not first quarter results," he added. "The big banks were winners from the bank failures but the profit environment going forward just got a little tougher in an economy that was already slowing."
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Meanwhile, Jamie Cox, managing partner at Harris Financial Group, told FOX Business, "Bank executives will likely be too cautious and oversell the effects of the banking crisis in hopes of staving off or denting regulatory changes that would impact earnings a lot longer than short-term funding issues."
"The worst thing that could happen going into a recession for mid-tier banks would be a major regulatory change affecting their capital at a time when it could be taxed by recessionary factors," he said. While some finance pros might be interested in seeing the banks’ deposit amounts, "the bigger question of bank liquidity was solved by the Fed.
"The longer we go with no major takeovers from the Federal Deposit Insurance Corporation, the fewer depositors will fear holding deposits at a bank," he finished.
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What are banks saying?
Kelly Crawford, VP and financial treasurer of Countybank in South Carolina, said, "The outlook for bank earnings is positive with net interest margin continuing to drive profitability."
"We believe net interest margin expansion has reached its peak with rising deposit pricing putting additional pressure on cost of funds," she continued. "While the potential for a recession continues to be at the forefront of everyone’s mind, tighter credit standards will follow, while the overall size of banks on average will be reduced in the first quarter, which should positively impact capital."
Last week, JPMorgan Chase CEO Jamie Dimon warned the turmoil that has engulfed the financial sector in the wake of recent bank collapses is not over and will ripple throughout the economy for many years.
Jamie Dimon, CEO of JPMorgan Chase, is sworn in during the Senate Banking, Housing, and Urban Affairs Committee hearing on Sept. 22, 2022. (Tom Williams/CQ-Roll Call, Inc via Getty Images / Getty Images)
In March, First Citizens Bank began acquiring assets from Silicon Valley Bank (SVB), the Federal Reserve announced another 25-basis-point interest rate increase after SVB and Signature Bank collapsed, erasing billions of market value in financial stocks.
Meanwhile, First Republic Bank struggled to stay in business even after a $30 billion lifeline from other financial institutions.
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Crawford said: "The yield curve rallied in the latter half of the first quarter, which should reduce the unrealized losses on bank balance sheets and securities portfolios."
"This should lead to less stress on liquidity and potential borrowing restrictions that could result if tangible capital ratios fall below specific targets," she added. "Bank earnings should continue to be positive; however, mortgage volume continues to be low due to high mortgage rates, which limits the growth potential for banks in the real estate lending sector."
And the academics?
In an interview with FOX Business, Derek Horstmeyer, a professor of finance at the George Mason University School of Business, said, "Some finance pros will look for disclosure in the footnotes."
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"For instance, details on percent of deposits that are over the regulatory threshold and any disclosure on the steadiness of deposits, or facilities they have access to for short term funds," he went on. "For others, commercial real estate performance will have their attention, which has been showing cracks in some parts of the country, so details on its performance could be important."