Banks to Release Key Earnings Reports on Friday

The unofficial start to the first-quarter earnings season is this Friday, when three of America’s biggest banks—J.P. Morgan, Citigroup and Wells Fargo—report their numbers. 

If recent comments from Jamie Dimon are any indication, it could be a pleasant day for investors. Quarterly earnings reports from the banking industry will probably be good, he recently said in an interview, while adding that he thinks the regional banking crisis is nearing its end. 

Such optimistic words from the CEO of America’s biggest bank are certainly encouraging, but they’ve done little to lift the fortunes of regional banks, most of which remain stuck near recent lows amid persistent concerns about deposit flight and rising funding costs. 

The SPDR S&P Regional Banking ETF (KRE) has lost a quarter of its value since March 7, even as the fund has pulled in $1.3 billion of inflows since then. 

Of course, the status of the big banks and the regional banks are different. While both are losing deposits as customers shift money from lower-yielding bank deposits into higher-yielding money market funds, the big banks are sitting on ample reserves.  

They don’t have to offer sharply higher rates to keep customers from fleeing. Nor must they constrain their lending to shore up their balance sheets like smaller banks do. That puts them at an advantage, though as banking analyst Mike Mayo argues, that doesn’t necessarily mean the crisis has been good for them. 
 
“Any crisis that damages Americans’ trust in their banks damages all banks—a fact that was known even before this crisis,” he said. “While it is true that this bank crisis ‘benefited’ larger banks due to the inflow of deposits they received from smaller institutions, the notion that this meltdown was good for them in any way is absurd.” 

It’s true that all banking executives are probably relieved that the regional banking crisis seems to be waning.  

After the collapse of three regional banks in quick succession—Silvergate Bank, Silicon Valley Bank and Signature Bank—no other bank has fallen. 

First Republic Bank, a San Francisco-based bank that shares many similarities with SVB, was the next weakest link in the chain, but actions taken by several bigger banks to support their peer have successfully prevented its collapse. 

Most regional banks start reporting earnings next week. Investors will closely scrutinize the numbers and commentary these banks put out to confirm whether it’s true that confidence has been restored and the bank runs have ended. 

But even if the worst of the crisis is over, more challenges are ahead for these banks. The question then becomes, how much damage has been done to bank earnings from recent events? 

How much have banks had to lean on more expensive sources of funding—like loans from the Federal Home Loan Banks—to replace lost deposits? And how much have they had to cut back on lending in response to money leaving the banking system? 
 
Those are open questions that depend not just on the resolution of the recent crisis, but the Fed’s monetary policy and the public’s demand for higher yields. 

Follow Sumit Roy on Twitter @sumitroy2