Earnings season kicks into high gear on Wall Street this week, with five major U.S. banks -- JPMorgan Chase & Co., Wells Fargo & Co., Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. -- slated to post quarterly financial results. A sixth bank, Morgan Stanley, is scheduled to disclose its results next week.
The financial sector was looking to benefit from a raise in interest rates this year, which would increase the cost of borrowing for the first time in nearly a decade. A hike in rates would improve the net interest margins of large banks.
However, concern in the industry is over the timing of the U.S. Federal Reserve's hike. In September, the central bank left interest rates unchanged but remained open to a hike as soon as October. Nearly half (47 percent) of economists and analysts polled by Bankrate.com predict the central bank will raise rates in December. Meanwhile, fed funds futures are now pricing the Fed’s first rate hike for March 2016.
“The point of impetus for investors will be if and when we actually see a change in monetary policy over the next quarter,” said Eric Wiegand, senior portfolio manager at U.S. Bank Wealth Management. “Financials have lagged as we’ve seen expectations pushed out further for the Fed rate hike.”
Standard & Poor's 500 earnings are forecast to have declined by 4.1 percent during the third-quarter from a year ago, analysts polled by Thomson Reuters predicted. The decline in earnings growth is driven by three primary factors: the volatility in global markets due to economic slowdown fears in China, the precipitous drop in oil prices over the last year and the strengthening U.S. dollar.
Here is a deeper look at the financial institutions that will be reporting soon:
JPMorgan Chase & Co. (NYSE:JPM), the biggest U.S. bank by assets, is slated to announce third-quarter results before the U.S. financial markets open Tuesday. In July, investment giant JPMorgan Chase beat Wall Street expectations on second-quarter earnings and revenue, helped by lower expenses.
Revenue from the bank’s fixed-income trading unit tumbled 21 percent to $2.93 billion. However, the bank sold its physical commodities business to Mercuria last year for $3.5 billion. Adjusted for the sale, revenue from the bank’s fixed-income trading unit is expected to have declined 10 percent.
Wall Street expects JPMorgan Chase to post net income of $5.2 billion, or $1.38 per share, on revenue of $23.7 billion, analysts polled by Thomson Reuters said. That compares with a profit of $5.1 billion, or $1.36 per share, on revenue of $25.2 billion in the same period a year ago.
Shares of JPMorgan Chase have shed nearly 1 percent since January, to around $62 per share.
Bank of America
Bank of America Corp. (NYSE:BAC) topped Wall Street earnings expectations in the second quarter, helped by lower legal costs. BofA disappointed investors in January, when the Charlotte, North Carolina, company reported an 11 percent drop in fourth quarter profit, largely due to lower revenue from fixed-income trading.
Ahead of the market open Wednesday, Bank of America is forecast to report net income of $3.8 billion, or 35 cents per share, on revenue of $20.9 billion, compared with a loss of $70 million, or a loss of 1 cent, on revenue of $21.4 billion a year ago.
Bank of America's stock has tumbled 12 percent this year, to around $15 ahead of the company’s latest earnings announcement.
Wells Fargo & Co. (NYSE:WFC), the fourth-largest U.S. bank, posted second-quarter earnings in line with Wall Street expectations as it saw stronger loan and deposit growth. However, lower fees weighed on revenue growth.
Higher interest rates also hurt the company's mortgage banking unit, with revenue falling 1 percent to $1.71 billion in the second quarter from a year earlier.
Analysts expect Wells Fargo Wednesday to report net income of $5.5 billion, or $1.05 per share, on revenue of $21.8 billion, compared with a profit of $5.4 billion, or $1.02 per share, on revenue of $21.2 billion a year earlier.
Shares of Wells Fargo have lost 4 percent this year, to trade around $52.
Investment bank Goldman Sachs Group Inc. (NYSE:GS) posted quarterly earnings that fell sharply from the prior year, hit by a $1.45 billion mortgage-related litigation charge. Meanwhile, its bond trading business, a traditionally strong unit, plunged 28 percent to $1.6 billion.
Thursday, Goldman Sachs is forecast to report net income of $1.8 billion, or $3.63 per share, on revenue of $7.5 billion, compared with a profit of $2.1 billion, or $4.57 per share, on revenue of $8.4 billion a year ago.
Shares of Goldman Sachs have lost nearly 7 percent since January, to trade around $181 ahead of the company’s earnings announcement.
Citigroup Inc.’s (NYSE:C) recorded its highest quarterly profit in eight years last quarter, helped by cost cuts, while expenses eased after taking a $3.8 billion legal charge a year earlier.
Thursday, Citigroup is expected to post net income of $4.07 billion, or $1.35 per share, on revenue of $18.6 billion. That compares with a profit of $3.26 billion, or $1.07 per share, on revenue of $19.98 billion a year ago.
Citigroup shares have lost nearly 5 percent this year, to trade around $51.
Morgan Stanley (NYSE:MS), the sixth-biggest U.S. bank by assets, posted earnings and revenue in July that beat Wall Street forecasts, driven by strong growth in trading revenue. During the March-June quarter, adjusted equities trading revenue soared 27 percent to $2.27 billion, topping rival Goldman Sachs Group Inc., which saw its equities trading revenue grow to $2 billion during the same period.
Ahead of the opening bell Oct. 19, Morgan Stanley is expected to post net income of $1.4 billion, or 68 cents per share, on revenue of $8.7 billion, compared with a profit of $1.6 billion, or 84 cents per share, on revenue of $8.7 billion during the same year-ago period.
Morgan Stanley’s stock price has dropped 15 percent this year to average $33.