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JPMorgan, Citi, BofA kick off Q4 earnings as interest rates poised to help and hurt

Jan. 12, 2023 4:03 PM ETJPMorgan Chase & Co. (JPM), C, WFC, BAC, NTRS, BLK, BK, PNC, FRCB, MTB, RF, GS, MS, STT, USB, TFC, CFG, KEY, FITB, HBANBy: Liz Kiesche, SA News Editor13 Comments

Business and Finance, Looking Up at High Rise Office Buildings in the Financial District of a Modern Metropolis

R.M. Nunes

As the Federal Reserve continues to raise rates, banks would be expected to see their net interest income rise in Q4 2022. But the earnings impact from higher rates isn't quite that simple. As rates rise, so do banks' costs on deposits. In

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Comments (13)

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Simple solution is to end the not so federal, Federal Reserve along with IRS.
Did not expect C to miss ... again..
Banks with high loan to deposit ratio's and those with high proportion of variable rate loans (typically business and commercial loans) in the overall asset mix will do well. Loan loss provisions will tick up, but slightly more than actually needed (hence setting the stage for future reserve releases to juice earnings in future quarters). For money center banks, deposit rates always greatly lag on the way up in a rising rate environment, and banks are really stodgy on deposit rate increases except on a few select money market and CD type deposits. The biggest headwinds are slack loan demand and rising non performing loan portfolio's -- although it is a bit early in the credit cycle for non-performing loans to be much of an issue right now. Most banks make most revenue on net interest income vs fees, so yes, rising rates are very favorable as long as they are disciplined on the deposit pricing front and the foregoing elements are in place.
@Chris Lau Long C, MS since the IPO.., BX and JPM! Lets go financials
ndardick profile picture
@Valuestocks007 In sync. I am long JPM, C, BX, CB, BLK, V, FSK and PNC. Over-weighted Financial Sector by 3x its S&P weighting. JPM's huge beat this morning should drive JPM higher rather than lower; no reason for JPM to trade at less than 10x earnings even if Jamie Dimon is such a sourpuss today.
Banks have been around for a very long time, just ask Shakespeare, in the long run don't bet against banks. I buy when I can and hold.
True as rates rise the cost of deposits increase but typically rates on loans usually rise faster so the banks net interest margin should increase. Credit losses will probably increase but most of the SIFI banks have more than enough reserves If the banks take extra charges I would be concerned
ndardick profile picture
Earnings will be driven by what the banks do with reserves for credit risks. The banks will still make money, increase book value, pay handsome dividends and execute share buybacks. I own substantial amounts of JPM, C, PNC and BLK, so will be up early tomorrow morning awaiting their earnings releases and listening to conference calls.
@ndardick $C trades at such a discount to TBV, it’s kind of nuts.
Yep, still trading at $4.90 equivalent from 10+ years ago.
Expectations of lower inflation and rates than thought could help bank stocks. When higher rates crushed them, low might do the trick.

In Europe some local banks been i rally mode last months, hopes for less
rate burden on real estate markets. The US bank stocks got to catch up, should not be lagging.
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