Overview
In the coming week, the six largest banks in the United States will collectively disclose their Q3 performance over the course of two days. According to Reuters' financial report preview on October 8, JPMorgan Chase, Goldman Sachs, Citigroup, and Wells Fargo will report on October 13, while Bank of America and Morgan Stanley will follow on October 14. Wells Fargo confirmed in its earnings schedule announcement that results will be released around 7 a.m. Eastern Time, with a conference call scheduled for 10 a.m.
What makes this round of earnings worth positioning for in advance is the divergence between expectations and stock prices. The same Reuters report points out that large banks could see a maximum year-over-year profit increase of about 20% for Q3, with no signs of deterioration in credit quality, yet the KBW Bank Index has retreated about 13% from its closing high in August, culminating in an overall decline of 6% for Q3. The market is expressing a concern: with the yield on the 10-year U.S. Treasury bond rising to its highest level in over two decades, whether higher interest rates are leading to an expansion in net interest income for banks or whether they are instead causing higher deposit costs, a slowdown in trading and underwriting, and a backlash from credit risks. This set of earnings will provide the first numerical answers.
Key Points
Simultaneous profit ascension and stock price decline exist. Reuters cites consensus expectations from LSEG as of October 7, showing that JPMorgan's expected Q3 earnings per share is $5.94, up from $5.07 in the same period last year; Wells Fargo is expected to report $1.85 compared to $1.66 last year; Citigroup expects $2.41 compared to $2.24. Profit expectations are generally elevated, but the bank index has retreated about 13% from its August peak.
The yield curve is the source of this round of divergence. According to the Federal Reserve's H.15 interest rate statistics, the yield on the 10-year U.S. Treasury bond was 5.28% on October 7, and 4.77% for the two-year bond. Rapid increases on the longer end have raised asset pricing and lowered the market value of existing securities portfolios.
Division in investment banking guidance is unprecedentedly apparent. JPMorgan expects mid-to-high teens growth year-over-year for both investment banking fees and trading income in Q3, while Bank of America has previously warned of at least a 10% year-over-year decline in investment banking fees, and Goldman Sachs anticipates a relatively flat Q3, with FICC relatively weak and equity business remaining strong.
Credit quality is currently improving rather than deteriorating. The Federal Reserve's credit card loan default rate series shows that the default rate for all commercial banks was 2.85% in Q2 2026, down for eight consecutive quarters from a peak of 3.22% in Q2 2024.
The space for capital returns has been confirmed by stress testing. The Federal Reserve's 2026 stress test results indicated that all 32 banks tested exceeded minimum CET1 requirements, with the overall CET1 ratio declining by 1.6 percentage points under severely adverse conditions, and this result does not alter capital requirements for large banks.
The most critical information may not be found in Q3 numbers. The Federal Open Market Committee meeting on October 27-28 will follow the earnings reports, and management's stance on Q4 net interest margin, deposit costs, and trading pipelines could more decisively influence stock price directions than already reported quarterly data.
Timeline of Earnings Week and Core Market Contradictions
Answers laid out by six major banks within two days
The density of disclosures in this round determines its informational value. On the morning of October 13, JPMorgan, Goldman Sachs, Citigroup, and Wells Fargo will nearly simultaneously report, covering all major lines of investment banking, trading, consumer credit, and wealth management; on October 14, Bank of America and Morgan Stanley will fill in the remaining pieces. Due to significant differences in the balance sheet structures of the six institutions, they will provide six different readings on the same macro environment, which is also why the bank earnings season has traditionally been seen as an economic check-up.
For investors, the real task is not to compare each bank's earnings per share to consensus expectations but to treat the six earnings reports as six answers to the same questionnaire: whether the revenue expansion on the asset side has been offset by costs on the liability side in a high-interest-rate environment, whether the recovery of capital market activities can extend into Q4, and whether consumers' repayment capacity remains robust.
Rising expectations, falling stock prices
Reuters’ preview has quantified this divergence. Large banks could see up to a 20% year-over-year growth in profits for Q3, but the KBW Bank Index has fallen about 13% from its closing high in August, culminating in a 6% decline for Q3, due to bond yields reaching decades-high levels. UBS bank analyst Erika Najarian attributed the decline in bank stocks directly to rising yields, stating that investors need confirmation of three things in this earnings round: that the capital market pipeline is adequately robust, that loan growth remains on track, and that the rise in deposit costs is manageable.
In other words, the market does not doubt the profit numbers for Q3; it doubts the sustainability of those profits. With long-term rates staying above 5%, any crack in the system will be magnified, and earnings reports are simply the way to test for the presence of any cracks.
The Dual Nature of High Interest Rates
A race between net interest income and deposit costs
Net interest income is the most critical variable in this earnings report cycle. When the asset side is repriced faster than the liability side, the net interest margin expands; once depositors begin to move checking accounts en masse to money market funds or fixed-term products, deposit beta rises, quickly erasing improvements in the net interest margin.
Current industry data leans optimistic. According to the Federal Deposit Insurance Corporation's Q2 industry brief, the industry-wide net interest margin increased by 1 basis point to 3.32%, with net income at $90.1 billion, up 12.0% quarter-over-quarter, and a return on assets of 1.37%, with domestic deposits increasing by 0.8% for the eighth consecutive quarter. Deposits are still flowing in rather than out, which is direct evidence that deposit costs have not spiraled out of control.
Cheryl Pate, a senior portfolio manager at Angel Oak Capital Advisors, expressed a similar judgment in Reuters' preview, indicating that she does not expect significant deposit outflows as customers chase higher yields, nor does she expect a sharp rise in deposit costs. However, this is precisely what the earnings report needs to verify, as interest rate hikes only occurred in September, and the transmission of deposit pricing usually lags by one to two quarters. Wells Fargo's Chief Financial Officer Mike Santomassimo stated at September's Barclays Global Financial Services Conference that Q3 net interest margin would be better than previously expected, with net interest income for the year maintaining guidance of around $50 billion.
Loan growth is still within an expansion range
Loan growth determines whether the improvement in net interest margin can translate into real revenue increments. The FDIC's same industry brief shows that nationwide loan growth increased by 1.8% quarter-over-quarter and by 6.8% year-over-year in Q2, clearly indicating that growth is widespread rather than concentrated in certain categories. Santomassimo mentioned in the same conference that Wells Fargo's loan growth in 2026 would surpass previous guidance of mid-single digits.
This set of data is significant for the valuation of bank stocks, as it illustrates that high interest rates have not crushed credit demand. The signals that truly need to be watched are the simultaneous weakening of quantity and price, meaning that a stop in loan balance growth while net interest margin peaks typically indicates a contraction in economic activity. Currently, there has been no evidence of such a combination.
Unrealized losses in securities portfolios being raised again
Long-term yields reaching their highest levels in over two decades inevitably brings back memories of the lessons learned in 2023. Bonds held by banks generate unrealized losses when yields rise, with floating losses from available-for-sale assets being included in other comprehensive income and eroding book equity; while held-to-maturity assets, despite not being marked to market daily, can translate into real losses when sold under distress.
Pate provided a relatively restrained view in Reuters' report, pointing out that most banks have since shortened the duration of their portfolios and managed the corresponding risks, thus she does not expect to see unrealized losses of the scale experienced in 2023 repeated. Shortening duration means that the market value losses caused by the same magnitude of yield increase are smaller, but that does not mean that floating losses disappear. What needs to be checked in the earnings report are the changes in other comprehensive income items, the disclosure of the duration of the securities portfolio, and whether management undertook portfolio restructuring in the current quarter.
Differentiation in Investment Banking and Trading Business
The backdrop provided by M&A and IPO data
Capital market activities represent the most elastic part of this earnings report cycle. According to Reuters citing LSEG statistics on October 1, global M&A deals rose 28% to $3.9 trillion in the first nine months of 2026, marking the highest level for that period since 2001, although the number of deals declined by 8%; the M&A size for Q3 alone dropped by 41% to $993 billion, marking the first time since Q2 2025 it fell below $1 trillion. In terms of equity financing, Q3 saw global stock offerings raising $284 billion, a 26% decline quarter-over-quarter, but up 39% year-over-year, excluding SPACs, the year-to-date IPO fundraising reached $215 billion, the highest since 2021.
This set of data depicts a market rhythm interrupted by interest rates: strong overall volume for the year, but a clear slowdown in Q3. LSEG's statistics also indicate that the number of transactions is declining, meaning that total growth is primarily driven by larger transactions, and the fee contributions from these types of deals are highly concentrated, leading to very uneven distribution among different investment banks. JPMorgan's global M&A head Charlie Bouckaert stated in the same report that strong long-term trends such as artificial intelligence continue to drive deal activity, and anticipates that 2027 will still be an active year. Goldman Sachs' co-head of M&A for Europe, the Middle East, and Africa, Carsten Woehrn, expressed that boards are feeling a stronger urgency to pursue strategic transactions.
Soaring yields by the end of September have already had a tangible impact. Reuters' earnings previews mentioned that the IPOs of Oura and SB Energy were postponed due to rising yields, directly affecting the allocation of underwriting fees between quarters.
Differences among the guidelines are now laid out
In September's Barclays conference, several major banks provided a rare clarity with contrasting guidance. JPMorgan expects mid-to-high teens growth year-over-year for both investment banking fees and trading income for Q3. Bank of America CEO Brian Moynihan warned of at least a 10% year-over-year decline in investment banking fees, while sales and trading revenues remained roughly flat. Goldman Sachs CEO David Solomon stated Q3 would be relatively flat, with FICC being relatively weak while equities remain strong. Morgan Stanley indicated that investment banking pipelines are still abundant.
This differentiation contains more informative value than the total volume data. It indicates that under the same market conditions, differences in business structures are amplifying performance discrepancies: institutions that excel in large M&A and equity trading benefit, while those reliant on mid-market underwriting and fixed-income market making come under pressure. For investors, this means that one bank's results cannot be used to infer the performance of the entire sector.
Observations for Each of the Six Banks
JPMorgan
October 13
Whether investment banking fees and trading income can deliver growth guidance in the mid-to-high teens, and management's description of the Q4 pipeline
Goldman Sachs
October 13
Whether the strength of the equity business can offset weaknesses in FICC, and the extent to which rising non-compensation costs and provisions erode profits
Citigroup
October 13
Whether tangible common equity return can exceed the 11% target, and the scale of share buybacks relative to 2025 increments
Wells Fargo
October 13
The extent of loan growth exceeding expectations, the sustainability of net interest margin improvements, and the performance of consumer credit
Bank of America
October 14
Whether the decline in investment banking fees halts at 10%, and whether net interest income can offset drag from capital market activities
Morgan Stanley
October 14
The net inflow of funds in wealth management, the pace of M&A pipeline execution, and business increments brought by AI-related financing
Citigroup's highlights come with explicit management guidance for reference. Chief Financial Officer Gonzalo Luchetti stated in September that the full-year tangible common equity return is expected to slightly exceed the 11% target, and the buyback scale for 2026 will be greater than the $13 billion in 2025. He took over as Chief Financial Officer in November 2025 in a transition announced, officially taking his position in March this year, thus this is his first complete annual framework, and the market's credibility in his guidance will be particularly scrutinized.
Transforming the observation checklist into actionable trading plans before the earnings reports come out is far more valuable than chasing news afterward. See how to trade Citigroup and other U.S. stocks on MEXC
Credit Quality and Capital Returns
Consumer credit is currently improving
The credit card default rate is the most Direct indicator to see if high interest rates have hurt consumers. The Federal Reserve's credit card loan default rate series shows that the reading was 2.85% for all commercial banks in Q2 2026, down from 2.91% in Q1 and 3.04% in Q2 2025, marking eight consecutive quarters of decline, falling 37 basis points from the peak of 3.22% in Q2 2024.
The New York Fed's Q2 household debt and credit report offers another perspective. By the end of Q2, the total household debt in the U.S. was $18.771 trillion, down 0.1% quarter-over-quarter; credit card balances were $1.263 trillion, up $21 billion from the previous quarter and up $54 billion year-over-year; the annualized rate of new serious delinquencies (90 days or more overdue) was 6.97%, remaining relatively flat compared to the previous year's 6.93%. The balance is increasing while the delinquency rate remains steady, indicating that consumers are still leveraging but have not shown systemic cracks in repayment capability.
Thus, provision accrual becomes a key judgment point in the earnings report. If banks proactively increase provisions while credit indicators have not deteriorated, it usually indicates management's macro outlook for Q4 and the next year has turned cautious. Goldman Sachs has previously suggested that provisions would rise due to several individual factors, and this description needs to be confirmed in the earnings report as to whether it is an isolated case or a trend.
The space for capital returns has been tested
The Federal Reserve's annual stress test published on June 24 provided a benchmark for the capital side. All 32 banks tested were above the minimum CET1 requirement under severely adverse conditions, with the overall CET1 ratio declining by 1.6 percentage points and expected total losses exceeding $708 billion, including credit card losses of about $200 billion, commercial and industrial loan losses of about $160 billion, and commercial real estate losses of about $75 billion. The scenario assumes an unemployment peak of 10%, a 30% fall in housing prices, and a 39% decline in commercial real estate prices. The Fed also stated that this result would not alter capital requirements for large banks, which will be maintained until 2027.
The implications for investors are straightforward: given that capital requirements remain unchanged and test results are favorable, each bank's repurchase and dividend decisions primarily depend on its own profitability and balance sheet arrangements, rather than regulatory constraints. Citigroup's guidance for buyback increments is given in this context. Worth verifying in the earnings report are the actual CET1 ratio relative to management targets, as well as the actual repurchases executed in the current quarter.
Risks, Scenarios, and Follow-up Observation Points
Risks that need to be recognized
The most easily underestimated risk is the time lag. The interest rate hike in September has not fully transmitted to deposit pricing, and the net interest margin improvement for Q3 may carry a transitional quality, while costs of deposits in Q4 could change this picture.
The second risk derives from the seasonality and concentration of capital market activities. M&A scales fell by 41% quarter-over-quarter in Q3, and revenue recognition typically lags behind deal announcements, meaning the fees for investment banking in Q3 reflect deal closures primarily from Q2, with the impacts of deceleration truly showing in Q4.
The third risk is the direction of interest rates themselves. If long-end yields continue to rise, unrealized losses in securities portfolios will further expand, and the valuation pressure on bank stocks will not be eliminated by a single good earnings report. For how rising yields simultaneously affect financial stocks and risk assets, you can refer to our previous breakdown on the implications of 10-year Treasury yields exceeding 5%.
Three scenarios
In the favorable realization scenario, net interest margins generally improve for the six banks, with loan growth maintained in the mid-to-high single digits, and the divergence in investment banking and trading income concentrating mainly in Bank of America, with management giving an optimistic stance for Q4. Under this combination, the current 13% sector pullback is closer to a misjudgment caused by interest rate panic.
In the heightened divergence scenario, institutions primarily engaged in capital market business perform strongly, while institutions reliant on traditional lending and deposit activities see net interest margins fall short of expectations, resulting in a further widening of valuation gaps within the sector, with indices likely continuing to consolidate.
In the expectation reversal scenario, if deposit costs rise faster than expected, or provisions exceed anticipated accruals, combined with a continued rise in long-term yields, the market may interpret the profit growth in Q3 as a peak in the cycle rather than a starting point, with pullbacks potentially spreading from the sector to overall risk assets.
Upcoming observation points
The minutes of the Federal Reserve's September meeting were published on October 7, and their hawkish wording has already been reflected in pricing of risk assets. For related responses, you can refer to the market's interpretation of these minutes. According to the Federal Open Market Committee's meeting schedule, the next interest rate meeting is scheduled for October 27-28, right after earnings week, at which time management’s guidance for Q4 will be mutually corroborated with the policy path.
Employment data provides another verification chain. The September non-farm payrolls added just 29,000 jobs; how such weak readings translate to interest rate expectations and banks' asset quality anticipations has been fully analyzed in our analysis of that employment report. If employment continues to weaken in Q4 while inflation remains sticky, banks will face dual pressures of decreasing credit demand and high financing costs, making this the tail-end combination most worth tracking.
Exclusive Insights from James Mitchell
In James Mitchell's view, the real highlight of this earnings report cycle is not the year-over-year profit growth, but the quality of growth in net interest income. The revenue expansion driven by the repricing on the asset side is mechanical and occurs whenever rates are raised; however, the cost increases on the liability side are behavior-driven and depend on when depositors decide to move funds. Q3 is the first incomplete quarter following the rate hike in September, which means that the benefits on the asset side have materialized, while the costs on the liability side have not fully been accounted for. Linearly extrapolating the improvement in net interest margin from Q3 into Q4 is the most common error in this earnings cycle.
Another potential misunderstanding by the market is mistaking the strength in the investment banking business as a rebound for the entire capital market cycle. LSEG's data is clear: while total M&A transactions grew 28% for the year, the number of deals fell by 8%, and Q3’s quarterly scale dropped 41% quarter-over-quarter. Overall volume is supported by a few large transactions, with fees highly concentrated among a handful of underwriting firms. JPMorgan gives a growth guidance of mid-to-high teens, while Bank of America issues a warning of at least a 10% decline; both describe the same market. Therefore, this is not a divergence in cycle judgment, but rather a redistribution of market share, leaving limited inferential value about the overall sector.
What should be tracked moving forward is the combination of three data sets rather than individual figures. Firstly, the variation between deposit costs and loan yield determines the direction of net interest margins, rather than their current level. Secondly, the divergence between provisions and credit indicators—a drop in the credit card default rate for eight consecutive quarters to 2.85% means that any proactive increase in provisions reflects management's assessment of the future, which is more forward-looking than current bad debts. Thirdly, the magnitude of changes in other comprehensive income items after long-end yields rise by 80 basis points measures the effectiveness of duration management of the securities portfolio, which has similarly been long overlooked by the market until 2023.
The cross-asset insight is that bank stocks currently serve as a concentrated expression of interest rate risk. With the 10-year U.S. Treasury yields reaching 5.28% and two-year rates at 4.77%, the term spread is approximately 51 basis points, which simultaneously determines banks' margin capacity, the market value of securities portfolios, the accessibility of M&A financing, and consumers' debt repayment pressure. When four revenue lines of a sector are driven by the same variable, its beta will significantly exceed the levels implied by the fundamentals, leading to overreactions in both pullbacks and rebounds. This also explains why stock prices can fall 13% even while profit expectations are raised. For investors allocating both stocks and crypto assets, this point is particularly worth noting, as long-end yields are becoming a common anchor across asset pricing, with bank stocks often reacting ahead of risk assets.
Frequently Asked Questions
When will the major U.S. banks release their Q3 2026 earnings reports?
JPMorgan, Goldman Sachs, Citigroup, and Wells Fargo will report on October 13, while Bank of America and Morgan Stanley will report on October 14. Wells Fargo confirmed in its official schedule announcement that results will be disclosed around 7 a.m. Eastern Time, with a conference call set for 10 a.m. Since the six institutions are disclosing in a tight timeframe, the market typically interprets the results for that week as a comprehensive health check of the U.S. economic credit condition.
Why are profit expectations rising while bank stocks are falling?
According to Reuters, large banks could see up to a 20% year-over-year increase in Q3 profits, but the KBW Bank Index has fallen about 13% from its closing high in August, resulting in an overall decline of 6% for Q3. The reason is that bond yields have risen to decades-high levels, causing concerns that high rates will negatively impact bank profitability through rising deposit costs, expanding unrealized losses in securities portfolios, and sluggish capital market activities. UBS analyst Erika Najarian directly attributed this round of declines to rising yields.
Are high rates beneficial or detrimental to banks?
Both effects coexist, with the difference lying in the timing. When the asset side reprices faster than the liability side, the net interest margin expands initially, which is what is most likely observed in Q3. Subsequently, rising deposit costs, expanding unrealized losses in securities portfolios, and a slowdown in M&A and IPO activities due to increased financing costs manifest typically one to two quarters later. Therefore, the key to determining the pros and cons is not the current net interest margin level but rather the speed of deposit cost increases relative to changes in loan yields.
What numbers should be focused on in this earnings report?
Sequential changes in net interest income and net interest margin, to assess the outcomes of the race between the asset and liability sides; deposit costs and balances, to see if depositors are starting to move funds; loan growth, to confirm whether credit demand is still expanding; provisions, to gauge management's outlook on the future; investment banking fees and trading income, to measure the degree of differentiation in capital market activities; and changes in other comprehensive income items, to assess the extent of damage to securities portfolios as yields rise.
Is there any sign of deterioration in the quality of U.S. consumer credit?
Current official data shows an improvement rather than a deterioration. The Federal Reserve's credit card loan default rates show that the reading for all commercial banks was 2.85% in Q2 2026, down for eight consecutive quarters from 3.22% in Q2 2024. The New York Fed's Q2 household debt report shows that credit card balances increased by $54 billion year-over-year, while the annualized rate of new severe delinquencies was 6.97%, remaining basically stable compared to last year's 6.93%. The balance growth with stable delinquency rates indicates that pressures have not yet concentrated significantly.
Will there be a clear differentiation in investment banking and trading businesses?
September's management guidance has made the differentiation clear. JPMorgan expects investment banking fees and trading income to both increase in the mid-to-high teens year-over-year, while Bank of America warns of at least a 10% year-over-year decline in investment banking fees. Goldman Sachs anticipates a relatively flat Q3, with FICC weaker than equities. The background is the LSEG's statistic showing a 41% quarter-over-quarter decline in global M&A scale for Q3, while overall volume for the year continues to grow by 28%, driven by a few large transactions, leading to highly uneven fee distributions.
How much buyback space do banks still have?
The space is mainly determined by stress testing and profitability. The Federal Reserve's Q2 2026 stress test results showed that all 32 banks tested were above the minimum CET1 requirements under severely adverse conditions. The overall CET1 ratio declined by 1.6 percentage points, and this result does not alter the capital requirements for large banks, which will remain in place until 2027. Under the condition that regulatory constraints have not tightened, Citigroup has guided that the buyback scale for 2026 will exceed $13 billion in 2025, while the actual amounts executed by other banks need to be verified in the earnings report.
Disclaimer
The above content is for general market information and analysis only and does not constitute any investment advice, financial advice, legal advice, tax advice, or trading recommendations. The prices of stocks, crypto assets, and other related financial assets may experience significant volatility, and past performance, analyst expectations, and consensus forecast data do not guarantee future results. The reported dates of financial reports, consensus expectations, management guidance, regulatory data, and industry statistics cited are from publicly available information at the time of publication, and actual financial results may differ significantly from market expectations; specific references should be made to each company's formally released financial reports and the latest information released by regulatory agencies. Readers should conduct their own research and exercise caution in making any decisions, weighing their financial conditions, investment objectives, and risk tolerance carefully and consulting qualified professionals when necessary. The MEXC Crypto Pulse team is not responsible for any direct or indirect losses arising from the use of the above information.
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