US bank earnings in focus as Treasury yields surge, raising concerns over lending and dealmaking

Investors will scrutinise third-quarter earnings from major US banks next week for signs that rising Treasury yields are increasing funding costs, slowing dealmaking and weighing on loan growth.

The six largest US lenders are expected to report higher profits than a year earlier, with analysts forecasting earnings growth of up to 20%, supported by stronger investment banking and trading revenue. However, concerns over the impact of higher interest rates have weighed on bank stocks.

The KBW Bank Index has fallen 13% from its August closing peak and declined 6% in the third quarter, reflecting investor concerns over the outlook for the sector.


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According to Reuters, JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo will report results on October 13, followed by Morgan Stanley and Bank of America on October 14.

Investors will focus on management commentary on deposit costs, loan growth and credit quality as borrowing costs rise. Higher Treasury yields also slowed capital markets activity towards the end of the quarter, raising questions about the outlook for investment banking revenue.

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Investment banking outlook in focus

Investors will closely monitor banks' deal pipelines after rising bond yields contributed to the postponement of several initial public offerings in late September, including those of smart-ring maker Oura and SoftBank-backed AI data centre developer SB Energy.

According to Reuters, analysts are looking for indications that planned deals can proceed in the fourth quarter and support investment banking fees.

Bank of America CEO Brian Moynihan said last month that the lender expected investment banking fees to decline by at least 10% in the third quarter, while sales and trading revenue was expected to remain flat. JPMorgan, by contrast, forecast a mid-to-high-teens percentage increase in investment banking fees and trading revenue.

The divergence in outlook could influence investor preferences between diversified lenders with substantial retail banking operations and investment banks more exposed to capital markets activity.

Deposit costs and credit quality under scrutiny

Another key concern is whether higher interest rates will prompt depositors to seek better returns, forcing banks to offer more competitive rates and squeezing their net interest margins.

Investors will also assess whether tighter financial conditions are affecting borrowers' ability to repay loans. However, analysts have not yet identified significant deterioration in banks' credit portfolios.

Market participants do not expect the recent rise in yields to trigger a repeat of the unrealised securities losses that contributed to the 2023 US banking crisis. Banks have since reduced the duration of their securities portfolios and better managed interest-rate risks.

What the six biggest US banks have indicated

JPMorgan Chase: The bank expects investment banking fees and trading revenue to increase by a mid-to-high-teens percentage, according to comments by Co-President Doug Petno at an investor conference last month.

Bank of America: The lender expects investment banking fees to fall by at least 10% in the third quarter, while sales and trading revenue is projected to remain flat. The outlook had weighed on its shares.

Citigroup: Chief Financial Officer Gonzalo Luchetti said the bank expects its return on tangible common equity to be slightly above its 11% target this year. Citigroup also plans to increase share buybacks in 2026.

Wells Fargo: The bank expects loan growth in 2026 to exceed its previous forecast, supported by healthy US consumer spending and credit trends, Chief Financial Officer Mike Santomassimo said.

Goldman Sachs: Chief Executive David Solomon expects a relatively muted third quarter, with fixed-income, currencies and commodities trading softer than the bank's stronger equities business.

Morgan Stanley: Co-President Dan Simkowitz said the investment banking pipeline remained robust, with companies continuing to invest heavily in artificial intelligence.

Bank stocks face a critical test

The upcoming earnings season will help investors assess whether strong trading and investment banking activity can offset pressure from rising funding costs and a potentially slower dealmaking environment.

While higher interest rates can support lending income, they can also increase deposit expenses and borrowing costs for businesses and households. Any deterioration in credit quality or a slowdown in loan demand could further complicate the outlook.

Investors will therefore look beyond headline earnings growth to banks' guidance on deposits, lending, credit conditions and capital markets activity to determine whether the recent weakness in bank stocks presents a buying opportunity or signals further pressure ahead.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times.)