Major US banks are on track to meet analysts’ third-quarter earnings expectations, thanks to good loan growth and rising interest rates, according to Credit Suisse. With several weeks left in the quarter, analysts led by Susan Roth Katzke examined the team’s key data points. In a note Wednesday, analysts wrote that loan balances to the industry are headed for a 2.6% increase from the previous quarter, which, combined with higher interest rates “will” supporting more net profit growth”. At the same time, loan losses from credit cards and other products remained low, and volatility in the market supported good trading results, although investment banking remained robust, they added. Roth Katzke writes: “Every incremental data point improves the clarity of the underlying picture. Bank stocks have been depressed this year on fears that a US recession is coming: The KBW Bank Index has fallen about 20%. But borrowers have held up relatively well, giving a boost to Main Street lending as the Federal Reserve raises interest rates four times this year. The dynamism presents opportunities for investors as long as the recession doesn’t trigger a wave of punitive defaults. The companies, which start reporting third-quarter results next month, expect revenue growth of about 3% from Q2 and earnings per share up 7%. The biggest risk to these estimates is tied to “market health,” including a decline in asset prices amid market volatility across asset classes. Analysts see an average total return of about 20% across the entire group of large-cap US banks if the Federal Reserve can successfully fight inflation without triggering a recession, but this group faces “a ~25% drop to ease a mild recession,” according to Credit Suisse. According to Roth Katzke, analysts “recommend the highest level of confidence” could return to around 30% and include Bank of America, Goldman Sachs and JPMorgan Chase. – Michael Bloom of CNBC contributed to this story.
