Many big banks in the US plan to announce their second-quarter earnings this week. Citigroup (C) is slated to be the first one to post its quarterly results today. We expect growth in loans and deposits to drive net interest income for most of these banks. However, lower market-related revenues could continue to hurt the company.

Notably, stocks of the majority of large US banks have marked stellar gains so far this year, thanks to the higher interest rate environment combined with growth in lending and deposit. Moreover, lower effective tax rate and share repurchases supported the earnings, and in turn, their stock prices.

What to Expect from Big Banks’ Earnings This Week

Key takeaways from big banks’ earnings expectations

Citigroup stock is up 37.9% so far this year. Meanwhile, Goldman Sachs, Bank of America, and JPMorgan Chase stock have returned 28.1%, 19.5%, and 18.1%, respectively. Wells Fargo stock underperformed peers and is up 2.8% on a YTD basis.

However, with the Fed’s dovish stance and a high possibility of a rate cut in July, the further upside in banking stocks seems limited. Also, uncertainty around the US-China trade deal and worries of a slowdown in the economy could hurt the stock prices of major US banks. Banks could find it challenging to grow net interest income amid loan spread compression and increased competition.

Despite challenges, we expect Citigroup, JPMorgan Chase (JPM), and Bank of America (BAC) to benefit from balance sheet expansion and share buybacks. On the contrary, lower credit offtake and decline in deposits could hurt Wells Fargo’s (WFC) revenues. Meanwhile, a decrease in the underwriting revenues and lower revenues in interest rate products could affect Goldman Sach’s (GS) top line.

Citigroup’s efficiency savings to drive earnings

Citigroup plans to report its earnings today. We expect the bank’s revenues and EPS to increase in the second quarter. An increase in net interest income driven by growth in loans and deposits is likely to support the top line. Moreover, improved efficiency, a lower tax rate, and share buybacks will likely support EPS growth.

Wall Street expects Citigroup’s revenues to be $18.5 billion, which reflects a marginal improvement from the prior year. Meanwhile, analysts expect Citigroup’s adjusted EPS of $1.80 in the second quarter, which implies YoY growth of 10.4%.

Analysts expect this bank’s earnings and revenues to improve

JPMorgan Chase plans to report its second-quarter earnings on July 16. We expect higher net interest income and growth in investment banking revenues to drive its top line. Meanwhile, share repurchases should support EPS growth.

Analysts expect JPMorgan Chase to report net revenues of $28.9 billion in the second quarter, which implies a YoY growth of about 2%. Wall Street expects JPMorgan Chase to post adjusted earnings of $2.50 in the second quarter, indicating YoY growth of 9.2% YoY. During the last quarter, JPMorgan Chase’s investment banking revenues jumped 10%. Moreover, management stated that the strong pipeline is expected to support IB revenues in the coming quarters.

Notably, lower underwriting revenues could hurt. But, as the IPO volumes are coming back to normal, the decline in underwriting revenues should be moderate. However, costs will likely increase and impact bottom-line growth.

Wells Fargo: persisting challenges to hurt net interest income

Wells Fargo plans to announce its second-quarter earnings on July 16. Analysts expect the bank’s revenues to remain weak. An unfavorable balance sheet mix and repricing are likely to hurt its net interest income.  Wall Street expects Wells Fargo’s net revenues to be $20.9 billion in the second quarter of 2019, reflecting a YoY decline of about 3%.

An expected decline in interest rate, weakness in lending, and competitive headwinds are expected to hurt Wells Fargo’s net interest income. Citigroup downgraded Wells Fargo stock on July 12. Citigroup downgraded Wells Fargo stock to “neutral” from “buy” and reduced the target price to $51 per share from $56.

Analysts expect Wells Fargo to post adjusted EPS of $1.15, implying YoY growth of about 6%. Share repurchases and the expected decline in effective tax rate are expected to support the bank’s bottom-line growth in the second quarter.

Goldman Sachs: revenues and EPS could continue to fall

Analysts expect Goldman Sachs’ second-quarter revenues and EPS to continue to decline. Analysts expect Goldman Sachs to post revenues of $8.9 billion in the second quarter, which implies a YoY decline of about 5%. Lower underwriting revenues and a decrease in revenues from interest rate products are expected to remain a drag.

Moreover, weakness in the top line and higher provisions are expected to hurt the bottom line. Wall Street expects Goldman Sachs to post adjusted earnings of $4.92 per share, implying a YoY decline of about 18%.

During the last reported quarter, the bank’s revenues fell 13%. Meanwhile, its adjusted EPS registered a decline of 17% on a YoY basis. Goldman Sachs will report its second-quarter earnings on July 16.

Bank of America: balance sheet expansion to drive growth

Bank of America will announce its second-quarter results on July 17. We expect the bank’s revenues to benefit from the increase in lending and deposit. However, weakness in the non-interest income could hurt. Management stated that the net interest income is likely to grow in 2019. However, the rate of increase is expected to be half of what it achieved in 2018. Increased competition and lower interest rate are expected to limit the growth rate.

Growth in net interest income and share repurchases is expected to support Bank of America’s bottom-line growth. Wall Street expects Bank of America to post adjusted earnings of $0.71 per share on revenues of $23.2 billion. The consensus estimates reflect YoY growth of about 2% in revenues and an 11% increase in EPS.

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