The largest US banks are likely to report that the interest rate windfall will last a little longer when they start reporting results for the first quarter on Friday.
JPMorgan, Citi and Wells Fargo will all update investors on their performance so far this year with attention likely to be firmly fixed on their guidance for the year.
Markets have trimmed bets on how many times they expect the US Federal Reserve to cut interest rates as inflation has overshot expectations.
The Fed is expected to cut rates a maximum of three times this year. At the beginning of the year, traders thought six cuts was a possibility.
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JPMorgan chief Jamie Dimon warns of ‘stickier inflation and higher rates’ as markets trim Fed bets
Just yesterday, Jamie Dimon, JPMorgan’s long-standing boss, said the bank was ready for interest rates as high as eight per cent.
Higher-for-longer rates will be a tailwind for the country’s largest lenders as it will support their net interest margin (NIM), a measure of how much a bank is earning in interest compared to the amount it is paying out to savers.
“Fewer rate cuts mean we expect that banks are likely to have a better outlook for net interest income for full-year 2024 than they did in January,” Betsy Graseck, an analyst at Morgan Stanley said.
A brighter outlook will take focus over a likely fall in net interest income over the first quarter.
The six largest banks are expected to report a combined 14 per cent fall in interest income in the first three months of the year, according to Bloomberg consensus.
Commenting on JPMorgan specifically, Jason Goldberg at Barclays said first quarter results should reflect “slightly lower net interest income” due to margin compression but still expected “the focus to be on its 2024 outlook, where it could up its net interest income guidance.”
Another major focus for investors, particularly given the likelihood that rates will remain high, will be the nonperforming loan ratio which includes loans in arrears or default.
There is expected to be little change in the health of banks’ loan book compared to the last quarter, but Kathleen Brooks, research director at XTB, noted that “any uptick in bad loan rate could be seen as a sign that the economy is heading for a hard landing.”
“Commercial real estate will keep focus, though the biggest driver for credit costs at the largest US banks is likely to be card – given growth, normalization and seasonally higher net charge-off rates,” Alison Williams, analyst at Bloomberg Intelligence said.
Goldman Sachs will report first quarter results next Monday with Bank of America and Morgan Stanley following on Tuesday.