A year after the regional banking crisis, the largest U.S. banks have demonstrated resilience and stability. Despite concerns about the economic impact of the crisis, consumer spending remains robust even in the face of elevated interest rates. Contrary to predictions of a recession by many economists, the economy has shown resilience, contributing to the most profitable year ever for JPMorgan following its acquisition of First Republic. Shares of the four largest U.S. banks have outperformed the broader market this year, supported by fewer interest rate cuts than initially anticipated, which are expected to benefit banks’ profitability in the near term.
However, higher interest rates pose a potential challenge for banks, presenting a double-edged sword. Uncertainty persists regarding how companies, consumers, and investors will navigate a period of prolonged higher borrowing costs. Investors are keenly awaiting updates on the performance of the largest U.S. lenders, including JPMorgan, Bank of America, Citi, and Wells Fargo, as they prepare to report first-quarter earnings in the coming week.
Analysts anticipate that first-quarter earnings for these banks may be roughly flat to lower compared to the previous year, partly due to significant payments they must make to the Federal Deposit Insurance Corporation following the banking crisis. Despite this, there is optimism about an improving economic outlook, which bodes well for credit quality, deposit/loan growth, and capital markets activity.
Investors are particularly focused on banks’ net interest income, a key metric reflecting revenue from interest-bearing assets minus interest expenses paid out to customers. JPMorgan, in particular, is closely watched as a bellwether for economic activity due to its status as the largest U.S. bank by assets. Expectations are high for a meaningful increase in guidance for 2024, especially for JPMorgan, which could raise its guidance to $92 billion or $93 billion.
Bank of America expects net interest income to decline in the first half of 2024 before rebounding in the second half, while Citi anticipates a modest decline due to lower interest rates offsetting loan and deposit growth. Wells Fargo faces challenges with more expensive funding costs likely leading to a decline in net interest income. Additionally, investors are monitoring updates on regulatory constraints on Wells Fargo’s growth following the sales practices scandal, with the asset cap expected to remain in place at least through 2024.
Despite these challenges, shares of major banks have posted solid gains this year, outperforming the broader market. Investors are closely watching earnings reports and guidance from these banks for insights into the sector’s performance and outlook.