U.S. Bank Stock Q3 Performance Review

Last quarter, the U.S. economy showed plenty of resilience, given a strong job market and healthy household balance sheets.

Results for most large banks were generally better than expected. In terms of revenue, JP Morgan Chase's revenue increased by 22% year-on-year to US$39.874 billion, significantly ahead of its peers, benefiting from the increase in net interest income brought about by the acquisition of First Republic Bank.

Other banks, such as Citibank, Bank of America, Morgan Stanley and Wells Fargo, saw revenue increase by 9%, 3%, 2% and 6.6% respectively year-on-year. Goldman Sachs' revenue fell 1.3% year-on-year to $11.82 billion.

In a high-interest rate environment, the performance of various U.S. banks varies significantly. The rise in credit default rates has led to an increase in banks' bad debt reserves, and the rise in yields caused by continued interest rate hikes has caused the value of bonds held by banks to fall.

Moreover, rising borrowing costs have slowed the financing needs of residents and businesses. Goldman Sachs' net profit fell 33% year-on-year, mainly due to the sluggish market investment environment, a sharp drop in revenue from the wealth management department, and losses from selling the loan platform, GreenSky.

Morgan Stanley's net profit fell 9%, mainly dragged down by its investment banking and wealth management businesses. However, the net profits of JPMorgan Chase and Wells Fargo increased significantly, with year-on-year increases of 35% and 61% respectively. As the growth in net interest income brought excess returns, Wells Fargo's personal banking and lending business accounted for 45% of the total.

The Federal Reserve's interest rate hikes led to a sharp increase in loan interest rates, and low-interest deposits during the pandemic led to a rapid expansion of interest spreads increasing net interest income. However, as the lagging effects of monetary policy may gradually emerge, this high growth in net interest income could be difficult to maintain at a high level.

U.S. bank stocks rose sharply in Q4, benefiting from the recovery in risk appetite brought about by expectations of interest rate cuts

Since November 2023, as the market has begun to price in an end to interest rate hikes by the Federal Reserve and possible rate cuts in 2024, the interest rate outlook has become more moderate, and a resurgence in risk appetite has prompted a sharp rise in U.S. bank stocks.

Investment banking and wealth management businesses, which have been severely dragged down last year, could receive a boost. However, as the lagging effects of high-interest rates could continue to ripple through the economy, the large inflow of high-interest deposits and the slower growth of loan business suggest a risk of decline in banks' net interest income.

In addition, in a high-interest rate environment, the sluggish market investment environment has led to a continued decline in trading revenue. In addition, the situation of commercial loans and credit card loans has deteriorated, and the rise in default rates has prompted banks to continue to increase bad debt provisions, which will offset the recovery in investment banking income. The deterioration in the outlook contrasts sharply with the continued rise in stock prices, and it seems capital markets are not pricing it in at the moment.

Expected U.S. Bank Stock Q4 Results Calendar

January 12 US (before US markets open) / January 13 Asia-Pacific

• JPMorgan Chase
• Bank of America
• Wells Fargo
• Citibank

January 16 US time (before US markets open) / January 17 Asia-Pacific

• Goldman Sachs
• Morgan Stanley

U.S. Bank Stock Trend Analysis

The rise in bank stocks began to slow in mid-to-late December, and trading volume became increasingly depleted. The current market has not yet priced in any significant movement. The technical indicator MACD shows signs of top divergence.

Citigroup, Morgan Stanley, JPMorgan Chase, Wells Fargo and Bank of America – Daily Chart

Source: CMC Markets (January 5)

This article was originally published on CMC Markets.

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