US bank profits to climb on stronger trading, investment banking

By Nupur Anand

NEW YORK (Reuters) -Major U.S. banks are expected to report stronger profits next week, driven by buoyant trading and a modest rebound in investment banking.

When JPMorgan Chase, Citigroup and Wells Fargo kick off second-quarter earnings on Tuesday, investors will focus on their outlooks at a time when economic uncertainty over U.S. tariff policies remains high.

“Things are looking good and we expect that most banks will beat expectations,” said Stephen Biggar, a banking analyst at Argus Research. “It is one of those quarters where no big surprises are expected and we are likely to see a continuation of trends.”

Investment banking activity has picked up in the second half of this quarter and dealmakers are more optimistic about the rest of the year. That marks a turnaround from April, when an escalating trade war and geopolitical tensions derailed confidence and drove mergers and acquisitions to a 20-year low that month.

“We expect second-quarter investment banking revenues to be better than expected and management teams to point to pipelines building,” Betsy Graseck, a banking analyst at Morgan Stanley, wrote in a report published last week.

Amid the market turmoil, Bank of America and Citigroup executives said last month they expected market revenue to climb by mid-to-high single digit percentages in the second quarter.

“We continue to expect the trading revenue to remain buoyant in the near future given the uncertain macroeconomic and geopolitical backdrop,” analysts at Goldman Sachs said.

Most of the major banks are expected to report a low-to-mid single digit percentage gain in net interest income (NII), or the difference between what they earn on loans and pay out for deposits.

Lenders are also expected to set aside smaller amounts for potential souring loans, as the financial health of consumers and businesses remains resilient.

Credit quality among consumer and commercial borrowers is still robust, and even though loan demand is muted, it is starting to improve, analysts say.

“One of the biggest questions is: how sustainable is this loan growth,” said Mike Mayo, an analyst at Wells Fargo. He sees industry loan growth rising to around 5%, higher than earlier estimates of 3%.

Banks are also expected to benefit from the deregulatory regime under U.S. President Donald Trump. Lenders recently aced the Federal Reserve’s stress test and showed enough capital to withstand possible adverse scenarios.

Investors will likely scrutinize banks’ plans to deploy excess capital after the lenders hiked dividends and some announced share buyback plans.