Investors Eye Impact of Rising Rates on US Bank Earnings and Dealmaking

Despite these projections, bank stocks are experiencing pressure. The KBW Bank Index has fallen 13% since its peak in August, marking a 6% decline in the third quarter alone. Major U.S. lenders such as JPMorgan Chase, Goldman Sachs, Citigroup, and Wells Fargo are scheduled to release their earnings on October 13, followed by Morgan Stanley and Bank of America on October 14.

The recent rise in interest rates has noticeably slowed capital markets activity late in the quarter. Investors are particularly concerned about whether these higher rates will lead to increased deposit costs and affect credit quality. Cheryl Pate, a senior portfolio manager at Angel Oak Capital Advisors, anticipates that investors will seek insights into credit growth and deposit costs, indicating that major deposit inflows due to higher yields are unlikely.

UBS bank analyst Erika Najarian noted that the weakness in bank stocks is tied to climbing yields and emphasized the need for assurances that loan growth remains steady and that the capital markets pipeline is healthy. Despite the increase in interest rates, analysts do not foresee banks facing unrealized losses in their securities portfolios, as they are now better positioned to manage risk.

In terms of investment banking, market participants will look for guidance regarding upcoming deals. The surge in bond yields led to the cancellation of several initial public offerings, including those of smart-ring maker Oura and AI data center developer SB Energy. Bank of America CEO Brian Moynihan recently indicated that the bank may report at least a 10% decline in investment banking fees for the third quarter, while JPMorgan is expected to report an increase.