Earnings Season Begins: US Bank Earnings and Challenges Ahead

Earnings season!

The earnings season kicks off this week with big US bank earnings. JP Morgan, Wells Fargo and Citigroup will be reporting earnings on Friday. Earnings of large banks may have reached their peak last quarter due to several factors. 1: Net interest income is likely to continue declining, 2. credit costs are gradually returning to normal and increasing, and 3. inflation is putting pressure on expenses. Then, banks are preparing for anticipated regulatory changes by increasing their liquidity levels, raising debt capital, and holding back on share repurchases. These actions are negatively affecting earnings per share growth for banks in general and could have a parallel negative impact on stock prices as well.

Also, we now observe steady deposit and loans, and a revenue increase in some US regional banks – which at the current price levels are considered as being undervalued. The major concern is the rising Fed rates that will continue putting pressure on the US banking system. And the regional banks remain the most in danger.