What a quarter for banks. While most analysts were hoping that interest rates would stabilize, they kept on rising which will likely lead to bank losses and funding struggles.
Banks are forced to pay higher rates for deposits with some analysts estimating close to a 20% per share decline in third quarter earnings. Loan demand also shrank to decade lows.
On Friday, earnings season for second quarter will start with three of America’s largest banks reporting: Citigroup, JPMorgan Chase and Wells Fargo.
Revenue and margins are both expected to decline throughout the banking sector. But bond losses will make the differential between stocks in the sector, depending on the duration of the bonds held by banks at low rates.
Yet bank stocks may not decline sharply, as the stocks have already experienced a difficult year and the large banks reporting Friday may forecast strong net interest income for the remainder of the year.
The market may have managed expectations.