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Big banks kicking off new earnings season: Will the rally continue?
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Bank Earnings Preview:Investment Banking Rebounds Sharply, Net Interest Income Outlook Brightens

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Moomoo News Global joined discussion · Jul 9 20:53
This Friday, $JPMorgan (JPM.US)$, $Citigroup (C.US)$, $Wells Fargo & Co (WFC.US)$, and $Bank of New York Mellon (BK.US)$ are set to unveil their quarterly earnings, heralding the start of the banking industry's second-quarter report card.
Bank Earnings Preview:Investment Banking Rebounds Sharply, Net Interest Income Outlook Brightens
A Brief Review of the Banking Sector
Ever since the Federal Reserve embarked on its rate-hike cycle in March 2022, the relentless climb in interest rates has significantly ramped up borrowing costs for businesses and consumers alike, casting a long shadow over the U.S. commercial banking system.
The U.S. banking sector has been in a state of flux since 2023, with five banks succumbing to bankruptcy within the year. At the onset of 2024, $New York Community Bancorp (NYCB.US)$ sparked deep market anxiety with its financial figures, triggering a precipitous drop in its stock price and reigniting concerns about the banking industry. Since 2023, the Nasdaq Bank Index has been on a roller coaster ride, with a decline of nearly 30% at one point. As of July 8th, the yield stands at 3.75%.
Bank Earnings Preview:Investment Banking Rebounds Sharply, Net Interest Income Outlook Brightens
What Are the Highlights of Q2 2024 Bank Earnings Season?
1. Deposit and Loan Growth Sluggish
Fed data shows small banks had flat deposits while large banks saw a slight decline. 24Q2, Small banks had growth in CDs, up 11.1% annually, but a 1.5% annualized decrease in other deposits offset it. Large banks saw a 12.7% growth in CDs, but a 9.4% annualized decrease in other deposits offset it.
Loan growth remains weak, with large and small banks seeing annualized growth rates of 2.9% and 3.1%, respectively, in Q2 2024, according to Fed data.
Bank Earnings Preview:Investment Banking Rebounds Sharply, Net Interest Income Outlook Brightens
Bank Earnings Preview:Investment Banking Rebounds Sharply, Net Interest Income Outlook Brightens
2. Net Interest Income Expected to Bottom Out, Overall Loan Quality Remains Manageable
Barclays analysts predict that Net Interest Income (NII) will decline for the sixth consecutive quarter due to soft loan growth and moderate increases in funding costs, but Q2 2024 will mark the bottom. Looking ahead, funding costs are expected to peak in this cycle, and the Fed can lower funding costs after interest rate cuts, with loan growth historically accelerating after rate cuts.
JP Morgan analysts believe that Q2 2024's net interest margin (NIM) will continue the trend of Q1 and remain unchanged, with NII remaining flat with NIM and average earning assets each expected to remain flat yoy.
In terms of loan quality, although industry-wide loan losses are stable to higher, analysts believe that overall it is moderate and manageable. As of Q1 2024, the overall delinquency rate for US commercial bank CRE loans was 1.2%. As of the end of May this year, CRE loans held by US small and medium-sized commercial banks accounted for more than two-thirds of the total CRE loans in the entire US banking system, indicating that small and medium-sized banks have a relatively high risk exposure in the CRE field.
Bank Earnings Preview:Investment Banking Rebounds Sharply, Net Interest Income Outlook Brightens
3. Expected Rebound in Investment Banking Performance
According to Bloomberg, analysts predict that investment banking revenues for JPMorgan Chase, $Goldman Sachs (GS.US)$, $Morgan Stanley (MS.US)$, Bank of America, and $Citigroup (C.US)$ will see an average yoy growth of over 30% in the second quarter.
"We have capital markets activity still running below the normal trend line and it is in the process of ramping up," said Betsy Graseck, a banking analyst at Morgan Stanley. "That tailwind, we think, will show up in the quarter and persist through the rest of this calendar year and into 2025."
However, bankers do not expect investment banking activity to return to 2021 levels. During the pandemic, low interest rates and government stimulus led to a surge in mergers and IPOs, but investment banking revenues dropped to their lowest levels in years in 2023 from the historical high point in 2021, mainly due to global central banks' interest rate hikes that suppressed mergers and new stock listings.
4. Analysts Remain Optimistic About Banks' Q2 Performance
According to Barclays analysts, "While mixed trends are expected this quarter, they believe most banks will exceed consensus EPS expectations. At the median bank, lower net interest income, stable fee income, lower expenses, slightly higher loan loss provisions, and modestly lower share counts are forecasted."
Goldman Sachs also expects positive results in a report released earlier this month. Bank stocks are expected to report an average revenue growth of 7% in Q2 2024, with trading revenue expected to grow by 6% in Q2 2024 and 3% for the year.
Are Bank Stocks a Good Investment Choice?
Amid multiple unfavorable factors, bank stocks are currently trading at historically low valuations. The P/E ratio for large banks is currently about 55% of the S&P 500 index, while the historical average discount is around 61%.
As the Federal Reserve begins a rate-cutting cycle and reverses the deeply inverted yield curve, the outlook for bank stocks is expected to improve significantly, as loan volume and quality are likely to improve.
According to Morgan Stanley analyst Betsy Graseck, Citigroup, JPMorgan Chase, and Wells Fargo are the top picks among large-cap banks. Betsy believes that JPMorgan Chase will accelerate its share buybacks in the coming quarters, Wells Fargo's outlook for net interest income could also improve, and Citigroup's views on buybacks and revenue could become a focus.
Last Friday, JPMorgan announced an 8.7% increase in its quarterly dividend to $1.25 per share and approved a new $30 billion stock buyback program. $Morgan Stanley (MS.US)$ announced an 8.8% increase in its dividend to 92.5 cents per share and approved a $20 billion buyback plan. Citigroup said it was raising its dividend 5.7% to 56 cents per share and that it would “continue to assess share repurchases” on a quarterly basis.
Gerard Cassidy, an analyst at RBC Capital Markets, believes that the next 18 months look very favorable for banks considering that the Federal Reserve is expected to cut rates, which could lower banks' financing costs, and the expansion of the US economy will help boost loan growth. Banks will return excess capital through share buybacks and dividends. The analyst said, "We continue to recommend that investors overweight bank stocks in their portfolios."
by moomoo News Olivia
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more
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