Will the third-quarter earnings season prove the charm for bank stocks, which have lagged behind other sectors and the main benchmarks this year?
Probably not, according to analysts previewing the numbers, even though expectations for the sector have been scaled back since the quarter-end.
There were positives in an economy that seems to be humming along, continued strong credit quality and cost discipline.
But loan growth was subdued, as reflected in Federal Reserve data, given growing competition from nonbank lenders, such as private-equity firms and insurers. And net interest margins (NIM) were held in check as Libor rates rose less than originally expected, while trading revenue slowed during the usual summer lull.
The strong dollar, questions about the global economy and the uncertainty created by the trade tensions between the U.S. and major trading partners China and Europe may also feature in reports and on earnings calls.
“We expect relatively lackluster third-quarter earnings results for the banks given both formal and informal downward revisions to loan growth and NIM outlooks coming out of several investment conferences last month,” said Raymond James analyst David Long.
“Indeed, with relatively soft industry loan data this quarter coupled with the impacts from the flattening yield curve and little change in short-term Libor rates, we see earnings outlooks continuing to be rationalized into/through the reporting period. “
JPMorgan Chase & Co. JPM, -0.11% Chief Financial Officer Marianne Lake said trading results at her bank are expected to fall by a mid-single digit percentage in the quarter.
“It was neither a particularly flattering comparison nor a particularly challenging comparison,” she told a Barclays conference in September.
But fee income from investment banking activity is expected to be flat to higher, a welcome result coming after a record in the same period a year ago, she said.
Jefferies analysts predicted that loan growth and NIMs should look better in the fourth quarter.
“Credit metrics should continue to beat, fees remain mixed at best (mortgage banking, trading/investment banking fees not great), and cost control will make a difference,” they wrote in a note.
Three of the nation’s biggest banks will launch the third-quarter earnings season on Friday and investors can only hope the reports will finally set a fire under their stock prices.
Here’s what to expect:
Earnings: JPMorgan is expected to report per-share earnings of $2.26, up from $1.76 in the same period a year earlier. Revenue is expected to come to $27.5 billion, compared with $26.2 billion a year ago.
JPMorgan has beaten EPS estimates for the past 14 quarters and has beaten on revenue for the past 11 quarters.
Citigroup Inc. C, -0.21% is expected to report earnings of $1.67 a share, up from $1.42 a year ago. Revenue is expected to come to $18.4 billion, up from $18.2 billion a year ago.
Citi has beaten EPS estimates for the past 14 quarters and has beaten revenue estimates for the last 11 quarters.
Wells Fargo and Co. WFC, +0.64% is expected to post EPS of $1.19, up from 84 cents a share a year ago. Revenue is expected to come to $21.8 billion, compared with $21.9 billion a year ago.
Wells Fargo has missed EPS estimates in four of the last seven quarters and missed revenue estimates for six of the last seven quarters.
Stock prices: JPMorgan shares have fared best in the year-to-date, adding 6%. But that lags behind the 7% gain posted by the S&P 500 index SPX, -0.49% and 6.4% gain for the Dow Jones Industrial Average. DJIA, -0.36%
Citi’s stock has fallen 3% in the period and Wells Fargo has fallen 12%.