The 2024 Q1 banking earnings season for US stocks will begin on Friday. At that time, heavyweight financial institutions such as J.P. Morgan Chase, Wells Fargo Bank, and Citigroup will announce their quarterly results one after another.
Judging from the performance forecasts of major banks, the market generally has high expectations for the banking industry leader J.P. Morgan Chase. Komo's Q1 earnings per share are expected to reach 4.11 US dollars, up about 0.26% year over year. Meanwhile, due to strong growth in the retail banking business, its revenue is expected to increase 6.1% year over year to reach US$40.689 billion. If the forecast comes true, sales for the quarter will reach a record high in J.P. Morgan Chase's history.
Furthermore, in the context of global deal matching, merger and acquisition activities, and the recovery of IPO underwriting activities, the market expects J.P. Morgan CEO Jamie Dimon (Jamie Dimon) to make positive predictions.
Since the Federal Reserve stopped raising interest rates in May last year, many bank stocks have gradually emerged from the haze of low stock prices and have rebounded strongly since the second half of last year. Among them,$Citigroup (C.US)$It rose more than 24% in the first quarter.$JPMorgan (JPM.US)$,$Wells Fargo & Co (WFC.US)$Over the same period, the increase was over 18%.
So, as the Federal Reserve's easing expectations continue to ferment, can bank stocks perform as well as stock price performance in the first quarter?
Factset analysts said that this season's bank stock earnings season should focus on the following aspects:
The first is whether net interest spreads have bottomed out (some banks may have reached an inflection point, while others may take several quarters to show);
The second is whether the credit situation has deteriorated (or whether it has spread beyond known fields such as commercial real estate and credit cards);
The third is the comprehensive bank management's explanation of the investment banking business situation this year.
After the Federal Reserve raised interest rates several times in 2022 and early last year, as interest rates remained high, bank deposit costs rose, and borrowers' interest expenses remained high. This has curtailed demand for loans and squeezed the profit margin between bank loan revenue and deposit payments.
Among them, net interest spreads, a key measure of the profitability of the US banking industry, continued to decline last year. According to S&P Global Market Intelligence data, the median net interest spread for the US banking sector declined for four consecutive quarters last year, and was 3.35% in Q4 2023.
Furthermore, the deterioration of credit due to the high interest rate environment has also become the key to affecting banks' profitability. The fourth quarter bad debt rate for the credit card business rose 94 basis points from a year earlier to 4.15%, the highest level since 2019. By the end of 2023, the total amount of non-performing commercial real estate loans reached US$25.26 billion, a year-on-year surge of 79%.
Looking back at the first quarter, the interest rate environment had a negative impact on banking performance. The 10-year treasury yield increased by 32 basis points, which means that banks will partially take back the OCI (other comprehensive income) gain obtained in the fourth quarter of 2023 due to the 69 basis point drop in treasury bond yields.
Currently, although expectations of interest rate cuts have weakened recently, the pressure on bank deposit costs will continue to slow as the interest rate hike cycle comes to an end. A number of banks are expected to improve their net interest spreads in the first quarter, which is more likely to be reflected in guidance for the second half of 2024.
edit/new