The earnings season is knocking at the door and investors are keen to see how major banks have performed in the second quarter amid uncertainty related to the trade war fears.
After impressive first-quarter 2018 results, major bank stocks’ performance lost some steam. The primary reason is the flattening of the yield curve. As such, net interest margin (one of the key metrics for gauging banks’ profitability) is expected to be subdued in the second quarter.
Also, growth in trading revenues, which was one of the main supporting factors during the first quarter, is likely to be muted. Though the second quarter witnessed uncertainty mainly related to the U.S.-China trade war and some other geopolitical tensions, it wasn’t sufficient.
Further, investment banking performance is anticipated to be flat. A rise in equity issuances across the globe might have gotten a boost from IPOs and follow-on offerings. Therefore, equity underwriting fees are projected to improve slightly. Also, increasing M&As will likely support banks’ advisory fees to some extent. These are, however, expected to be more than offset by lower debt origination fees, as rising rates will limit corporates’ involvement in these activities.
Dismal mortgage banking performance is also expected to continue in the second quarter amid rising interest rates as mortgage originations and volume declined.
Nevertheless, a decent improvement in lending, particularly in the areas of commercial and industrial, and consumer will offer support banks’ interest income while weakness in revolving home equity loans is expected to persist.
Further, asset quality is anticipated to remain strong, backed by an improving economy and conservative underwriting standards.
Increased investment in technology to strengthen digital offerings and initiatives to expand into newer areas are expected to result in a slight rise in expenses. But, increase in overall non-operating expenses is likely to be manageable.
