Third-quarter earnings for the big U.S. banks begins on October 11 with prints from JPMorgan Chase (JPM) and Wells Fargo (WFC). However, some analysts are warning that the lenders’ results could be negatively impacted by what’s expected to be the lowest income from lending in nearly two years.
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While the U.S. Federal Reserve lowered interest rates by 50-basis points on Sept. 18, that reduction is unlikely to have a meaningful impact on the Q3 financial results of the major U.S. banks. Rather, the lenders are likely to report continuing impacts from the era of high interest rates that has only now begun to recede.
The Financial Times is reporting that JPMorgan Chase, Wells Fargo, Bank of America (BAC), and Citigroup (C) are expected to report combined net interest income of around $62 billion. That would represent a decline of almost 5% from the third quarter of 2023. Net interest income is the difference between what banks pay on deposits and what they earn from interest charged on loans.
Consumers are Tapped Out
While higher interest charged on loans such as home mortgages and vehicle financing have benefitted U.S. banks, they have also put tremendous strain on consumers and led to a decline in the number of loans being issued this year and the income earned by banks on those loans. A lending boom that began in 2022 has fizzled out, and is likely to be reflected in the upcoming Q3 earnings reports.
Bloomberg reports that the Q3 net interest income total among the four largest U.S. lenders is expected to be the lowest amount since the end of 2022. Some analysts are forecasting that Q3 net profits among the four biggest U.S. banks will decline an average of 15% from a year ago. Any disappointment in the banks’ earnings could send their share prices sharply lower.
When a senior executive at JPMorgan warned in September that analysts were too optimistic about its upcoming earnings, the bank’s stock fell 5% that day. Bank of America and Citigroup are scheduled to report their Q3 financial results on October 15.
Is JPM Stock a Buy?
JPMorgan Chase stock has a consensus Moderate Buy rating among 19 Wall Street analysts. That rating is based on 14 Buy and five Hold ratings issued in the last three months. There are no Sell ratings on the stock. The average JPM price target of $225.64 implies 7.70% upside from current levels.
