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Bank Earnings Start October 13. Here's a Simple Guide to What JPMorgan, Goldman and the Rest Will Tell Us

Why banks go first

Four times a year, public companies report how much money they made. That stretch is called earnings season, and the big banks always open it.

That's useful, because banks have a view nobody else has. They can see whether people are paying off their credit cards, whether small businesses are borrowing, and whether big companies are doing deals. What bank CEOs say on these calls often tells you more about the economy than official statistics.

The calendar

JPMorgan is first out, at about 7:00 a.m. Eastern.

Three things to watch

Money Morning described this quarter as a "three-engine stress test." It's a helpful way to think about it.

1. Interest income

Banks borrow from depositors and lend to borrowers. The gap between the two rates is their bread and butter, called net interest income.

The Fed raised rates in September, and long-term yields are the highest in two decades. In theory that's good for banks: they can charge more on loans. Wells Fargo has guided to about $50 billion of net interest income for the year.

The catch is that savers aren't sitting still. With Treasury bills paying around 4%, people move money out of checking accounts that pay nothing. Banks then have to pay up to keep deposits. Watch whether interest income is growing as fast as rates.

2. Wall Street businesses

This is trading stocks and bonds, advising on mergers, and helping companies sell shares.

The second quarter was huge, with record profits. Expectations for the third are mixed:

• JPMorgan expects investment banking and markets revenue up in the mid-to-high teens from a year ago.
• Citigroup expects single-digit growth.
• Bank of America expects investment banking fees of $1.6 to $1.8 billion, down 10% to 20%.

Volatile markets are usually good for trading desks. The wild swings in bonds and oil this quarter probably helped.

3. Loans going bad

This is the one that matters most for the economy.

When people lose jobs or businesses struggle, they stop repaying loans. Banks have to set aside money to cover those losses, called provisions.

Hiring has slowed sharply. The US added only 29,000 jobs in September, and unemployment ticked up to 4.2%. If banks start setting aside noticeably more for bad credit card and auto loans, it's a sign the slowdown is reaching household budgets.

What analysts expect

Remember this week's lessons from Micron and Tesla: the stock reaction depends on the result versus these expectations, not on whether the number is big.

The hidden risk: bonds on the books

Banks own a lot of government bonds. When yields rise, those bonds fall in value. With the 30-year Treasury at a 24-year high, the paper losses on those holdings have grown.

For the biggest banks this is manageable. It's worth listening for, though, especially at smaller regional banks that report later in the month.

What it means for you

If you own bank stocks: focus on credit quality and what management says about the next few quarters, more than on whether they beat by a few cents.

If you own an index fund: financials are about one-eighth of the S&P 500 and roughly a third of Canada's TSX. You own these results either way.

Canadians: the big Canadian banks report on a different schedule, in late November and early December. But US bank results often set the tone, and several Canadian banks have large US businesses.

If you're a saver: if your bank is still paying close to nothing on your savings, you're part of the reason its profits are high. See where to keep cash in high-yield savings vs money market funds.

If you're new to this: pick one bank, and read the first page of its press release on October 13. Revenue, profit, and the outlook. That's 80% of what matters. Our guide on how to read an earnings report shows you where to look.

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