Big Bank Earnings: What I'm Looking Forward To

Banking - Shutterstock photo
Credit: Shutterstock

Today, I intended to write about big bank earnings under the above title, but as I researched and planned the piece, I came to realize that the title was apt in more ways than one. I set out to do a preview, but then I came to see that I was “looking forward” to bank earnings in a more positive sense too. I suppose it is a sad commentary on my life that the anticipation of Wall Street firms telling us how many billions of dollars they made from all of us has me excited, but this quarter’s bank earnings will be informative way beyond their bottom lines.

The most important thing about the banks’ reports this quarter, as has been the case a few times recently, won’t be how much money they made, but how they made it.

Bank earnings statements are incredibly complex things. The combination of multiple revenue sources, complicated regulatory requirements, and volatile assets make their financial statements, balance sheets, and cash flow statements almost impenetrable to the layman. That often leads to stocks in the sector behaving in seemingly illogical ways after earnings, as the market reacts to something other than EPS, revenue, or outlook.

I believe we may see more of that this quarter, as I expect all or most of JP Morgan (JPM) and Goldman (GS), who report tomorrow, and Bank of America (BAC), Wells Fargo (WFC), Morgan Stanley (MS) and Citi (C), all of whom will release earnings on Thursday, to report good numbers that the market doesn’t cheer as much as expected. In fact, we could even see a few of those drops on beats that are so mystifying from the big retail banks over the next couple of days.

Banks are anticipated to do well, and that is hardly surprising. Volatility in equity and fixed income markets may be worrying for most of us, but I can tell you from personal experience that for the denizens of dealing rooms, movement equals money, and we have seen plenty of movement over the last three months. That will lead to some impressive trading profits, and trading accounts for a big enough share of overall EPS at most banks to make a significant difference to the bottom line.

However, what most traders, and certainly longer-term investors, will be looking for are improvements in the more traditional banking business units, most notably interest income. That is the money that banks make by lending to businesses and individuals. There is a feeling that those business units at the big banks will rebound in a big way this quarter. The optimism there may be overdone.

Interest rates may be low and expected to rise, which should encourage borrowing, but for a lot of firms outside of banking, there is a more important issue than rates or rate expectations. The market has, so far, shrugged off things like supply chain disruptions, the labor shortage, and the global energy issues, but they are real problems for real companies operating in the real world. They are struggling with those things right now, and if you can’t get supplies or hire workers, who is going to borrow to expand and invest?

Nor is it likely that consumers will lead the charge. Borrowing is recovering after people paid down debt during Covid but, again, the reality on Main Street is different from the perception on Wall Street. With housing, food and energy costs soaring, working people don’t feel that secure or optimistic and are therefore less likely to increase their indebtedness.

It could well be, then, that banks will report good earnings in dollar terms that still disappoint the market. That will create some volatility in bank stocks and therefore, a lot of opportunity for traders and investors, but it will also create some movement outside of the sector as the dichotomy between Wall Street and Main Street comes into focus. As I said, I was trained to see volatility as opportunity, so maybe my eager anticipation of bank earnings isn’t so sad after all.

Do you want more articles and analysis like this? If you are familiar with Martin’s work, you will know that he brings a unique perspective to markets and actionable ideas based on that perspective. In addition to writing here, Martin also writes a free newsletter with in-depth analysis and trade ideas focused on just one, long-time underperforming sector that is bouncing fast. To find out more and sign up for the free newsletter, just click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics

Stocks Markets Economy

Martin Tillier

Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.

Read Martin's Bio