Bank Earnings Preview: What to Expect from BofA, Citi, and Goldman

The banking sector is set to release its quarterly earnings, with Bank of America (BofA), Citigroup (Citi), and Goldman Sachs (GS) among the major players. These announcements are highly anticipated as they provide insights into the financial health of these institutions and the broader banking industry. In this article, we will delve into what analysts are saying about these banks ahead of their earnings releases and what investors should watch for.

1. Bank of America: Expected Decline in Profitability

Bank of America is expected to report a significant decline in profitability. According to analysts, the bank's net income is anticipated to be $6.1 billion, down from $7.8 billion in the same quarter last year. This decline is largely attributed to a reduction in net interest income, which is projected to fall to $14 billion from $14.4 billion in the previous year. Despite this outlook, investors might still favor the bank due to its robust fee-based business and strong wealth management operations.

The reduction in net interest income is a common theme among major U.S. banks. JPMorgan and Wells Fargo have also reported lower third-quarter earnings compared to the previous year, but their stock prices rose after the results exceeded expectations. This mixed performance highlights the complexities of the banking sector and the need for investors to be selective when evaluating these stocks.

2. Citigroup: Loan Growth Remains Elusive

Citigroup is another bank that faces challenges in loan growth. Analysts at JPMorgan have raised the price target on Citigroup to $71.50 from $65.50, but note that loan growth remains elusive for banks. The slowdown in rate cuts following a strong jobs report will further push back the expected recovery in these loans, according to JPMorgan. This indicates that Citigroup's financial performance may be impacted by the ongoing economic conditions.

JPMorgan also highlighted that bank stocks have been choppy recently, with regional banks outperforming money centers since the Q2 earnings. This is largely due to the anticipation of greater benefits from sizable rate cuts over the next 18-24 months. In the near term, however, JPMorgan prefers money centers like Citigroup over regional banks.

3. Goldman Sachs: Mixed Signals Ahead of Earnings

Goldman Sachs is expected to report mixed signals in its earnings. Analysts at JMP Securities have raised the price target on Goldman Sachs to $550 from $525 and maintained an Outperform rating on the shares. Business conditions are inflecting positively for the vast majority of Financials and FinTech companies, leading JMP Securities to anticipate healthy revenue and earnings growth in the coming years.

However, Goldman Sachs also faces challenges in its consumer business. The bank will take a $400 million hit this quarter due to its floundering consumer business, primarily related to its General Motors credit card business and a smaller, unrelated business. The bank is in talks with GM and Barclays about transferring the carmaker's credit card business but has not yet reached an agreement.

Additionally, Goldman Sachs is looking to exit its partnership with Apple, where credit card balances total around $17 billion. This exit could result in even bigger losses than those associated with the GM sale to Barclays.

3.1 Net Interest Income Concerns

One of the key concerns for Goldman Sachs is the continued decline in net interest income. Analysts expect net interest incomes to fall by 4% on average in Q3 due to lagged deposit repricing and tepid loan growth. This decline is expected to outweigh fixed asset repricing, leading to a net interest income inflection only in Q2 of 2025.

Despite these challenges, Goldman Sachs maintains a strong position in wealth management and capital markets. The firm sees upside risks coming from higher wealth management margins as well as better capital markets performance.

3.2 Credit Card and Commercial Real Estate Concerns

Goldman Sachs also faces concerns around charge-offs, particularly in credit card and commercial real estate. While these concerns have moderated in recent months, reserve builds for banks could continue. This indicates that Goldman Sachs may need to allocate additional funds to cover potential losses.

Overall, the mixed signals from Goldman Sachs reflect the complexities of the banking sector. The bank's ability to navigate these challenges will be crucial in determining its future financial performance.

4. Morgan Stanley: Potential for Recovery

Morgan Stanley is another bank that analysts are watching closely. HSBC recently upgraded Morgan Stanley to Buy from Hold with a price target of $118, citing that the stock's long period of underperformance could be ending. The firm believes Morgan Stanley's leading investment banking and wealth management franchises will continue benefiting from a healthy market backdrop.

HSBC also noted that concerns about net interest income seem overdone given Morgan Stanley's healthy fee-based asset flows and accelerating management fee growth in wealth management. This suggests that Morgan Stanley may be poised for recovery in the near term.

However, loan growth remains elusive for Morgan Stanley as well. The firm's ability to manage this aspect will be crucial in determining its future financial performance.

4.1 Investment Banking and Wealth Management

Morgan Stanley's investment banking and wealth management franchises are key drivers of its financial performance. The firm's strong position in these areas should continue to benefit from a healthy market backdrop, boosting its financial performance.

Goldman Sachs also sees upside risks coming from higher wealth management margins as well as better capital markets performance for Morgan Stanley. This indicates that both firms are well-positioned to benefit from the current market conditions.

Overall, the banking sector is facing a complex set of challenges and opportunities. The upcoming earnings releases from BofA, Citi, and Goldman will provide valuable insights into how these institutions are navigating these complexities.

Investors should remain vigilant and selective when evaluating these stocks, considering both the short-term challenges and long-term potential of each bank.

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