This week is a big one for the major banks with some of America’s largest financial institutions set to report their first quarter (Q1) results before markets open on Friday.
So which bank stocks will investors be watching?
Bank stocks to watch
JPMorgan (JPM), Wells Fargo (WFC), Citi (C), and BlackRock (BLK) will be among the big players posting their Q1 earnings.
The financial failures within Silicon Valley Bank and Signature Bank (SBNY) in March — and a slowing economy — are expected to hurt profitability in the longer-term.
In a letter to shareholders last Tuesday, JPMorgan Chase’s chief executive, Jamie Dimon, also gave a stark warning on the banking upheaval.
“As I write this letter, the current [banking] crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come. But importantly, recent events are nothing like what occurred during the 2008 global financial crisis (which barely affected regional banks).”
Will revenues rise or fall?
Despite global economic woes and the impact of the bank crisis, results are still expected to be fairly positive.
“Overall revenues are expected to rise in the first quarter, compared to the previous year, despite the banking scare, but there is set to be more trouble on the horizon, as the pressure of high interest rates take a toll on the wider economy,” Susannah Streeter, head of money and markets at Hargreaves Lansdown, said.
Streeter also highlighted that the picture may look rosier on the face of it, thanks to volatility on stock markets, which should lift trading revenues, and because consumers and companies are still showing resilience and appetite for borrowing.
Squeezing margins
However, Streeter said investors will be focusing on the outlook — and signs that margins will face a squeeze in the months to come are likely.
“The big focus will be on the extent of deposit flight, as clients withdraw money to invest in potentially higher yielding opportunities, like money market funds. It’s highly likely we are past the net income margin peak, and that banks will be forced to pass on the higher rates to customers, to stem the flow of deposits, which will limit future earnings potential from loan books,” Streeter added.
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“Although the Silicon Valley Bank collapse and its repercussions have sparked a rush of new custom with transfers from smaller banks, in a flight to safety, it’s not likely to have offset the deposit outflow as clients seek higher returns elsewhere. So, taking more defensive action by attracting more deposits may be the priority from management teams which will eat into net income margins.”
Recession risks rising
With inflation staying sticky, and the Federal Reserve still set to keep the tightening screws on, risks of recession are rising.
“And there will be keen eyes trained on the prospects of a greater number of loans turning delinquent and lower debt recoveries, particularly in the real estate and auto sectors,’’ Streeter concluded.
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