Wall Street profit expectations for megabanks retreat

Citigroup Inc. C, +1.91% and Wells Fargo & Co. WFC, +1.91% both report earnings on Friday, July 15, while Bank of America Corp. BAC, +1.38% and Goldman Sachs Group Inc. GS, +0.74% weigh in on July 18. The detachment between healthy business performance and poorly share prices in 2022 seems to apply also to megabanks throughout 2022’s Q2 earnings season, amid bear market conditions for US equities.

Investors and traders do monitor potential headwinds in loan growth and credit quality in the banking sector as JPMorgan Chase & Co. JPM, +1.28% and Morgan Stanley MS, +0.91% are scheduled to report earnings on Thursday, July 14, as the first two of the big-six US banks.

Bank of America’s stock ended the first half of 2022 with a loss of 30.0% as the weakest performer among the big six banks, while JPMorgan Chase shares have dropped 28.9%, Citigroup by 23.8%, and Wells Fargo by 18.4%.

Morgan Stanley stock had fallen by 22.5% since the start of 2022 and Goldman Sachs was off 22.4%.

Bank stocks have been dragged lower in 2022 by forward-looking recession fears, even as the current economic conditions remain relatively strong. The selloff in stock prices makes sense, since stock market investors look ahead and earnings reports mostly provide a look back.

Some of the economic pessimism in the stock market came from the banks themselves; JPMorgan Chase CEO Jamie Dimon warned of a hurricane coming in the US economy.

The Financial Select SPDR ETF XLF, +1.37% ended the first half with a loss of 19.5%. The S&P 500 index SPX, +1.06% dropped 20.6% in its worst first half since 1970. The Dow Jones Industrial Average DJIA, +1.05% retreated by 15.3% as of Thursday’s close.

Putting a positive spin on weak stock performances, Deutsche Bank analyst Matt O’Connor said bank stocks are already pricing in a 65% to 75% chance of a recession, which suggests “good upside potential” in 2023.

Analysts tend to see no reason to reduce megabank earnings forecasts by drastic margins since the end of the first quarter. Out of the six bank giants, analysts cut estimates on five, and raised estimates on JPMorgan Chase.
JPMorgan Chase is on deck to report second-quarter earnings of $2.94 a share on revenue of $31.85 billion, according to FactSet estimates. Analysts have hiked their profit estimate for the bank from a mean of $2.79 a share as of March 31.

Analysts expect Morgan Stanley to report earnings of $1.70 and revenue of $13.97 billion. The median estimate for Morgan Stanley was $1.81 as of March 31, according to FactSet data.

Next is Citigroup, which is expected to earn $1.66 a share on revenue of $18.26 billion. The bank’s second-quarter earnings forecast has fallen a dime since the March 31 analyst estimate of $1.76 a share, according to FactSet.

Wells Fargo is expected to earn 88 cents a share on revenue of $17.72 billion. Its second-quarter earnings target stood at 95 cents a share on March 31.

Bank of America is expected to report earnings of 79 cents a share on revenue of just under $23.0 billion, according to FactSet. At the end of the first quarter, analysts had expected the company to earn 83 cents share.

Finally, Goldman Sachs GS, +0.74% is on tap to earn $7.86 a share on revenue of $11.66 billion, according to Fact. On March 31, analysts had expected the bank to earn $9.35 a share.