Major U.S. Banks Ahead of Financial Reports; Interest Rates and Lending Outlook in Focus

Major U.S. banks are set to release their third-quarter financial reports this week, as rising Treasury yields, the likelihood that the Federal Reserve will maintain its tight policy, and slowing activity in the IPO market complicate the sector's outlook. Although analysts still project continued growth in bank profitability

The third quarter financial reports of the major American banks are published this week, in a situation where the increase in Treasury bond yields, the possibility of the continuation of the contractionary policy of the Federal Reserve and the decrease in the mobility of the initial stock market have complicated the outlook for this industry. Although analysts continue to predict growth in banks' profitability, the cost of funding, demand for facilities and investment banking revenues could change the course of their performance.

Major American banks will publish their third quarter reports from October 21.

An increase in bond market rates can increase the cost of funding and put pressure on loan demand.

A slowdown in IPOs threatens investment banking's earnings outlook.

The credit quality of facilities, loss reserves and interest income forecast are the most important evaluation indicators.

In addition to profit and revenue figures, investors will look for signs of asset quality, the cost of deposits and the sustainability of trading activity, according to a Reuters report on Oct. 8 and an analysis published by Charles Schwab on Oct. 12, 2026.

Why is the bank report particularly important?

At the beginning of the financial reporting season, banks present a relatively broad picture of the state of the US economy. Their performance shows how households and companies are ready to receive loans, investments and financing.

Despite the expected growth in the profits of major banks, the performance of the financial sector of the stock market in the third quarter has been weaker than the overall index. Estimates published in the Schwab report also show that the profit growth of companies in the financial sector of the S&P 500 index is about 3.3%; A figure lower than the expected growth for the whole index.

Increasing the yield of treasury bonds can increase the cost of borrowing for banks and their customers. Also, if the rate of deposits increases faster than the income from the facility, the interest margin of the banks will be under pressure.

initial public offerings and transactions; Two important sources of risk

One of the main concerns is the possibility of declining investment banking income. Increasing volatility of interest rates and more difficult financing conditions have forced some companies to postpone the initial public offering. A reduction in the number of large deals could limit fee income for banks involved in underwriting, mergers and corporate financing.

Bank of America had previously warned that its investment banking fee income would fall at least 10% in the third quarter, and that trading income would likely remain flat. In contrast, JPMorgan has raised the expectation of an increase in fee and transaction revenues.

However, increased volatility in the bond market can create opportunities for banks' trading units; Therefore, the impact of higher rates on all banks will not be the same.

JP Morgan, Goldman Sachs, Citigroup and Wells Fargo will report on Tuesday, October 21, and Morgan Stanley and Bank of America will report on Wednesday, October 22.

"From an analytical point of view, the most important point in this week's reports is the gap between the nominal growth of profit and its real quality. Citigroup's or JPMorgan's profit growth becomes more valuable when it is accompanied by stable deposit costs, good quality of facilities and a reliable income outlook. In an environment where bond yields and the cost of capital are rising, the market is likely to give more weight to future projections than past performance; Therefore, the tone of the managers about the profit margin, credit risk and transaction flow can be more decisive for the valuation of banking stocks than just going through the profit estimate.

What indicators should investors check?

The most important criterion is banks' forecast of interest income in the fourth quarter. A decrease in this forecast can be a sign of a narrowing of the profit margin or a drop in the demand for facilities. The amount of credit loss reserves is also important; Its increase may indicate the concern of the bank management about the default of more borrowers.

Along with these things, the trend of the cost of deposits, growth of lending, credit quality of customers and prospects of trading income should be examined. Even if past earnings are better than expected, management's conservative forecast can lead to a negative market reaction.

The upcoming reports of major American banks are a test to measure the banking system's resistance to higher interest rates and a possible reduction in financing activities. Expected profit growth alone is not enough to guarantee the favorable performance of banking stocks; The quality of earnings, the cost of resources and the credit outlook will determine how sustainable this growth will be.

Artificial intelligence has been used to translate some parts of this report.