NEW YORK, NY - OCTOBER 11: A man holds a New York City-themed umbrella outside the New York Stock Exchange (NYSE) on a rainy day in the Financial District, October 11, 2018 in New York City. Following a massive sell-off of over 800 points on Wednesday, the Dow Jones Industrial Average fell over 100 points in Thursday morning trading. (Photo by Drew Angerer/Getty Images)
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JPMorgan Chase kicks off the US banks third-quarter earnings season on Friday, followed by Citigroup and Wells Fargo an hour later. The group together accounts for three of the top US banks by assets. Here are the areas to watch: 

The Great Markets Sell-off

The backdrop for the results is the toughest period US markets have suffered since the Brexit vote, and investors will be closely watching banks’ commentary for any insights into why the rails have come off. Bullish comments highlighting strong fundamentals and markets’ over-reaction may help put a floor on the sell-off. Banks may also talk about their trading business benefiting from increased volatility, or they may have been caught off side if their own traders or highly leveraged clients suffered big losses. 

Rates Rates Rates

US banks’ capacity to translate higher interest rates into higher profits remains firmly in focus. Banks have so far done well at keeping deposit rates down while charging more for loans, but analysts suspect that that trend is beginning to turn. In the third quarter, banks suffered from a flattening yield curve, where the price of long-term and short-term debt converges, squeezing banks’ profits because they make money by borrowing cheaply at shorter term rates and lending for longer durations at higher rates. Executives may also be asked if they see rate rises tailing off now that US President Donald Trump has accused the Federal Reserve of “going crazy” with its increases. 

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Show me the Growth

Mr Trump’s tax cuts were supposed to boost confidence and encourage people to spend and borrow again, but banks’ balance sheets offer little evidence that the measures are reversing three years of mostly slowing loan growth. With a trade war of varying degrees of severity hanging over businesses for much of the third quarter, analysts are not expecting to see a third lending boom. They will, however, be watching for any sign that lending trends are improving. 


All good cycles must come to an end. Delinquency rates on US loans have fallen sharply since 2010, leaving analysts and investors to wonder when the other shoe is going to drop as the credit cycle matures. Defaults and charge-offs for the third quarter are expected to remain low, but anything that suggests increasing stress will be closely scrutinised. 

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Trading floors

JPMorgan and Citi have set expectations low for trading revenues in the third quarter. JPMorgan predicted a “single-digit” percentage fall in its trading revenues and Citi estimated it would be flat or slightly higher. Other banks are expected to strike a similarly gloomy tone. Analysts are also concerned that investment banking fees, such as for advising companies on M&A, could be weak in the third quarter. 

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