By Tatiana Bautzer and Pritam Biswas
NEW YORK, Oct 8 (Reuters) - Investors will scrutinize US quarterly bank earnings next week for signs that a recent spike in Treasury yields may curb dealmaking and lending growth and raise funding costs across the industry.
Third-quarter earnings are expected to rise up to 20% from last year for the largest banks, with investment banking and trading revenue significantly higher than in the previous period and no signs of deterioration in the credit portfolio.
However,
bank stocks have come under pressure as bond yields climbed to multidecade highs, with the KBW Bank Index down 13% from its August peak close and down 6% in the third quarter. The largest lenders' profits are still expected to rise in the third quarter over the previous year, according to analysts.
Four of the six largest US lenders, JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo will report results on October 13. Morgan Stanley and Bank of America will release third-quarter earnings on October 14.
Higher interest rates slowed capital markets activity late in the quarter. Investors are focused on whether higher rates will also drive up deposit costs and weaken credit quality.
Cheryl Pate, senior portfolio manager at Angel Oak Capital Advisors, thinks investors will look for guidance on credit growth and deposit costs. "We don't expect any big deposit flows with customers looking for higher yields or any drastic rise in deposit costs," Pate said.
In a note to clients, UBS bank analyst Erika Najarian linked bank stocks' weakness to the spike in yields and added that investors will need reassurances that the capital markets pipeline remains robust, loan growth is on track and a rise in deposit costs is contained.
Despite the recent rise in interest rates, analysts do not expect banks to deal again with unrealized losses in their securities portfolios as they did during the 2023 banking crisis. "Most banks have since reduced the duration of their portfolio and managed the risk," Pate said.
INVESTMENT BANKING REVENUE
Investors will watch for any guidance on investment banking deals, after surging bond yields contributed to initial public offering cancellations late in September. Smart-ring maker Oura and SoftBank-backed AI data center developer SB Energy delayed their IPOs. Investors will look for news on potential deals and execution in the fourth quarter to try to predict investment banking revenue.
Bank of America CEO Brian Moynihan warned last month the bank expects to report at least a 10% drop in investment banking fees in the third quarter, while JPMorgan said it will disclose an increase.
Cooling investment banking prospects are leading some analysts to consider whether banks with retail operations could become more attractive to investors than pure investment banks.
Here is what bank executives have said about third-quarter earnings and what analysts expect from the six biggest US lenders:
JPMORGAN CHASE
JPMorgan Chase expects investment banking fees and trading revenue to rise by a "mid-to-high teens" percentage, Co-President Doug Petno said at an investor conference last month.
BANK OF AMERICA
Bank of America expects its investment banking fees to drop by at least 10% in the third quarter, while sales and trading revenue will be flat, CEO Brian Moynihan said last month, triggering a sharp drop in its shares.
"We're down to (a) small position in some of the businesses that had more activity, so we'll be down probably a bit more than that," Moynihan said.
CITIGROUP
Citigroup Chief Financial Officer Gonzalo Luchetti said last month the bank expects its return on tangible common equity to be slightly above its 11% target this year.
The bank will also increase the volume of stock buybacks in 2026, Luchetti added.
WELLS FARGO
Wells Fargo expects loan growth in 2026 to be better than its previous forecast and sees healthy US spending and credit trends, according to Chief Financial Officer Mike Santomassimo.
GOLDMAN SACHS
Goldman Sachs CEO David Solomon told investors last month to expect a muted third quarter. He expects the bank's fixed-income, currencies and commodities business to be softer compared to a strong performance for its equities business.
MORGAN STANLEY
Morgan Stanley Co-President Dan Simkowitz said last month the bank's investment banking pipeline looks robust and that companies are still in the middle of the AI investment cycle.
Bank Q3 2026 EPS Q3 2025 EPS
estimate
JPMorgan $5.94 $5.07
Bank of America $1.10 $1.06
Citigroup $2.41 $2.24
Wells Fargo $1.85 $1.66
Goldman Sachs $12.44 $12.25
Morgan Stanley $2.94 $2.80
Source: LSEG estimates on October 7
(Reporting by Tatiana Bautzer and Pritam Biswas; Editing by Rod Nickel)
