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US bank earnings preview: bank profits set to fall


The US Q4 2022 earnings season will kick off with major banks, including JPMorgan Chase & Co, Bank of America, and Citigroup Inc., first reporting their performance before the US markets open on Friday. All four bank stocks have rebounded from their October lows by following the comeback in the broad equity markets, with JPMorgan leading gains, up about 38%.

Amid a rising risk of the US recession, company earnings will be on close watch for how businesses survive in the tough macro environment. Usually, banks benefit from rising interest rates by growing their net interest income. However, there is also a flip side as the rapidly rising interests have lowered loan amounts and high inflation has drained consumers’ bank deposits, while the tightened liquidity has also caused a sharp decline in the deals-making and company IPOs. According to Infinitive, the US big banks’ profits may decline by about 17% year over year due to an increase in the loan loss provisions. So what are the numbers that you should be looking at for the upcoming earnings reports?

Profits are expected to drop among US major banks

JPMorgan Chase - In general, the bank has been benefiting from rising rates, which helped increase its net interest income, but the expanding loan loss reserve may pressure the whole profit margin.  JPMorgan Chase’s net income dropped by 17% YoY in the third quarter, with an EPS of $2.9 and revenue at $33.49 billion. According to Visible Alpha, it is expected to report $3.09 in EPS or an 8% drop from a year ago in the fourth quarter. The revenue estimate is $34.3 billion, or a 17% increase year on year. The decline in the bank’s profit is most likely caused by an increased loan loss reserve, which has been increased by $1.1 billion to $1.5 billion in the third quarter and the figure may rise to $3.5 billion in the final quarter.

Though CEO Jamie Dimon repeatedly warned of recessionary risks, he expects to resume shares buybacks next year.  JPMorgan’s shares rose about 38%, closing at nearly $90 on Wednesday.

Bank of America – The bank has also topped market expectations with its EPS at $0.81 on $24.61 billion in revenue, or an 8% drop in profit due to an increased credit loss provision of $ 898 million in the third quarter. While its fixed-income trading revenue surged 27%, investment banking reported a sharp decline of 46% to $1.2 billion.

According to Wall Street’s consensus, it is expected $0.78 in EPS on $24.4 in revenue, or a 5% decline and 11% growth in revenue year over year.

Citigroup - The bank reported $1.63 in EPS on $18.5 billion in revenue, both of which beat market expectations in the third quarter. However, the bank missed the estimated figure for the fixed income and trading revenue, reporting $3.06 billion and $1.01 billion, respectively. It has also suffered a profit decline due to the same reason, a jump in its loan loss provision, rising to 1.37 billion.

Analysts expect the bank to report EPS at $1.18 on $17.89 billion in revenue in the fourth quarter, or a 19% decline and 5% increase year on year, respectively.

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