Analysts forecast an ugly third quarter for bank earnings on Friday, and what to expect?

Major banks and financial institutions start their earnings reports on Friday morning. Wells Fargo (WFC), JPMorgan Chase (JPM), Morgan Stanley (MS), Citigroup (C) and PNC Financial Services Group (PNC) are all reporting quarterly results. Performance has been mixed so far since the announcement began. “Capital markets did not improve in the third quarter of 2022 and there are no signs of improvement going forward,” said Kenneth Leon, director of CFRA Research, in a bank preview for the third quarter. Morgan Stanley analyst Betsy Graseck said last week that banks face greater liquidity constraints and must finance loan growth with higher cost deposits, debt and securities outflows. She says financial institutions with excess capital, liquidity and positive operating leverage are at their best in the long run as this leads to an accelerated rise in credit cycles and leads to times when loans are more expensive and harder to get. The consensus estimate for the fourth quarter and the outlook for 2023 are expected to be lower, she said: “Equity analysts are likely to lower their target p. Rice and EPS are presumed to be optimistic that future bank performance will decline.” The CFRA sees 2022 and 2022 “to be plagued by sluggish banking” due to high inflation, Fed rate hikes and reduced consumer demand. Wells Fargo Earnings Expectations: Wells Fargo’s adjusted earnings appear to have declined 3.5% to $1.13 per share with a slight decline in sales to $18.77 billion. Results: Wells Fargo’s quarterly earnings fell 27% to 85 cents per share, but revenue increased 3.7% to $19.5 billion. The company said its net interest income surged 36% due to higher interest rates, loan balances and lower mortgage-backed securities amortization. Non-interest income fell 25% due to lower mortgage banking, venture capital and investment banking income. Wells Fargo posted $2 billion in operating losses related to litigation, customer improvement and regulatory issues. WFC shares were up about 1.5% in pre-open trading as a result after gaining more than 4.6% on Thursday. The stock is down 15.5% so far this year. JPMorgan Chase Earnings Expectations: Observers expect JPMorgan earnings to decline 22% per share to $2.90 per share and to increase 8.4% to $32.13 billion per share. Results: JP Morgan’s earnings decreased 16.6% to $3.12 per share and revenues increased 10.3% to $32.7 billion. JPMorgan added $808 million to its credit reserves during the quarter, lowering its net income compared to last year, when it released $2.1 billion from its vault. Net interest income rose 34% on the back of interest rate hikes. However, non-interest income declined 8% due to lower investment banking fees, losses on corporate securities investments and lower home loan production. JPM shares were up more than 2% before opening on Friday after gaining 5.6% on Thursday. It decreased by almost 34.6% compared to the same period last year. Morgan Stanley Earnings Expectations: Wall Street expects earnings to drop 25.5% to $1.52 per share. Revenue declined 10% to $13.27 billion. Results: Morgan Stanley’s adjusted earnings fell 25% to $1.53 per share and revenues fell 12% to $12.98 billion. Morgan Stanley’s investment banking and investment management earnings fell 55% and 20%, respectively, as capital market movements slowed. MS stock fell more than 2.8% before opening, overturning Thursday’s 3.6% growth. Morgan Stanley stock is down about 22% so far in 2022. Citi Earnings Expectations: Citi’s adjusted earnings are expected to rise 6.5% to $18.27 billion and decline 33% to $1.44 per share. Results: Citi revenue decreased 24% per share to $1.63 per share and revenue increased 7.8% to $18.5 billion per share. The decline in Citi’s profits was due to an increase in its loan reserves. Citi secured an additional $370 million for credit losses during the quarter, for a total of $1.37 billion. Last year, it launched more than $1 billion. Meanwhile, Citi’s private banking revenues rose 10% to $4.33 billion. C shares rose 2.2% early on Friday and rose 5.2% in Thursday’s trading, but the price is down 32.4% this year. PNC Earnings Expectations: Analysts expect PNC’s adjusted earnings to increase 13% to $3.73 per share and to increase 4% to $5.4 billion in revenue. Results: Quarterly earnings increased 14.5% to $3.78 per share and revenue increased 6.7% to $5.55 billion. Net interest income rose 14% to $3.5 billion, driven by higher asset returns and loans, but was partially offset by higher funding costs. Non-interest income increased slightly to $2.1 billion. PNC also increased its provision for credit losses to $241 million from $36 million last year as the economic outlook weakened. PNC shares were up 2.1% prior to Friday after gaining 4.7% on Thursday. The stock is down 27.1% from the beginning of the year. Follow Harrison Miller on Twitter @IBD_Harrison for more news and stock updates. You may also like: Banking & Finance Stock News & Analysis Get Your Free IBD Newsletter: Market Prep | technical report ​​| How to Invest See stocks in the leader’s list near the buy point. Short-term trading can yield huge profits. IBD’s SwingTrader shows you how to get stock ideas from IBD experts every morning before opening.
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