JPMorgan, Bank of America earnings expected to shine

The first of the U.S. big six banks will report second quarter (Q2) earnings on Friday

‘Big Six’

The first of the U.S. big six banks will report second quarter (Q2) earnings on Friday, offering the latest insight into whether major U.S. lenders have sustained the strong pace of profit growth seen over the last few quarters.

The very biggest U.S. bank, JPMorgan will report at the end of this week, together with Wells Fargo and Citigroup. Goldman Sachs, Morgan Stanley and Bank of America, will release Q2 figures on 18th July. Here, we outline key themes to look out for, together with a few specifics for Friday’s batch of results.


Once regarded as ‘Trump Trade’ stocks par excellence, due to their place at the heart of the new administration’s plans to cut taxes and financial regulation, big lenders’ prospects became less certain when those hopes faded as the White House’s troubles mounted. But after a late-February to mid-April wobble, bank shares kept rising. They were up around 24% on aggregate this week since 8th November, as shown in the rebased chart of the S&P 500 Financial index below.

Figure 1 – S&P 500 Financial index: 8th Nov 2016 to date (rebased)

Source: Thomson Reuters and City Index


Three further Federal Reserve interest rate rises since December 2015’s have revived borrowing costs, resulting in an eight basis point lending margin rise in Q1. If it holds across the sector, U.S. banks could net an additional $11bn of interest income per year, according to data from bank researcher Autonomous. Despite halting progress most recently, general U.S. economic improvement has also underpinned big banks.

The deal

Dealogic’s analytics platform this week shows the large U.S. banks back in the top five spots for global announced M&A advisory in the year to date. Goldman remains number one and Citi has leapt four places to number two. In equity deals, whilst the 92% rise year-on-year in Q1 for global IPOs looks difficult to sustain, a stronger year-on-year pace is still likely for Q2. At $16.1bn, Q1 proceeds were already close to the total for the whole of 2016, when a paltry $18.8bn was raised, the lowest in 7 years, looking at Renaissance Capital’s annual IPO report.


On the negative side, the key near-term risks for big U.S lenders also relate to financial and economic conditions. Recent yield curve gyrations may play havoc. The U.S. five-year and 30-year curve reached 93.10 basis points late last month, the flattest since 2007. In recent weeks curves have begun to normalise, though Q2 interest margins may already have been impacted.

Revenue views

The outlook for bank revenue growth also looks flat for now. Mature North American and Western markets are continuing to cap growth. With the retrenchment of recent years over, forays by the big banks into faster-growing emerging markets ought to aid top lines, but these have much further to run. Some large banks have already warned investors not to expect another unusually profitable quarter for trading.

What to watch

Almost all U.S. lenders passed the Federal Reserve’s latest and toughest ‘stress test’ last month, satisfying the Fed’s condition for increased dividends and share buybacks. With balance sheet growth still largely constrained by a fragile yield curve – ‘capital optimisation’ – AKA share buybacks — could step up a gear. Citigroup announced within hours of the test result that it would double its quarterly dividend and hike buybacks by $15.6bn to $18.9bn over a year. The rest of the largest six can be expected to at least turn up the notch to some degree.

On other fronts though, differing share price returns so far this year underline differing expectations. Goldman, down 4% and Wells Fargo up barely 1%, have apparently been marked by investors. Goldman is still nursing a discount after failing to benefit from the recent rise in trading revenues. Its fund management outflows so far this year, estimated at $26bn, easily the worst by any global manager monitored by Morningstar, are another potential pressure. Wells, the least exposed to trading, is still dealing with the aftermath of last year’s sales scandal. It warned in June that new credit card account openings have been hit.

Still, as the table below shows, sizeable profit growth is only expected at Bank of America and JPMorgan in Q2, seldom the year’s strongest quarter for banks. Revenues are forecast to be little changed. Low expectations could therefore enable strongly positive share price reactions if expectations are exceeded. JPMorgan in particular has garnered a reputation for beating expectations. My colleague Kathleen Brooks pointed out this week that 6 of its last 8 quarterly earnings were above Wall Street forecasts.

Table 1 – Earnings and revenue forecasts

Bank Name

Earnings Forecasts (rounded; $)

Revenue Forecasts (rounded; $)

Q2 2017 EPS Estimate

Q2 2016 Reported

Q2 YoY Estimate Growth

Q2 2017 Estimate


Q2 2016 Actual Reported


Q2 YoY Estimate Growth

Goldman Sachs Group Inc.







Citigroup Inc.







Wells Fargo & Co







Morgan Stanley







Bank of America Corp







JPMorgan Chase & Co







Source: Thomson Reuters and City Index

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.