Key Takeaways
- U.S. banks’ earnings announcements begin next week, and their results could help investors get a feel for how the economy is doing.
- Analysts expect banks remained financially strong in the most recent quarter, thanks in part to resilient consumers and businesses.
- Bank executives are optimistic, buoyed by strong stock market performance, steady consumer spending, and a rebound in IPOs and corporate dealmaking. However, analysts said that could change if the economy takes a turn.
With a government shutdown forcing a data blackout, the upcoming U.S. bank earnings season will let investors gauge the economy’s health.
Big banks such as JPMorgan Chase, Wells Fargo, CitiGroup, Goldman Sachs and Bank of America begin reporting their earnings next week. At least as of Sept. 30, banks were in solid shape and poised for more improvement in the last quarter of the year, analysts say.
Their borrowers, whether credit card holders or large corporations, showed little sign of stress. Loan activity was improving, and ebullient markets were driving fees to the Wall Street operations of larger banks. President Donald Trump’s administration is loosening bank regulations, whether on tiny one-branch banks or megabanks.
“The group’s backdrop is about as strong as we could hope,” Scott Siefers, a bank analyst at Piper Sandler, wrote in a note to clients.
However, the optimism could fade if the economy takes a turn—an increasingly difficult scenario to gauge since the shutdown means the official September jobs report and other economic data haven’t been released.
Why Bank Earnings Matter
The economic health of banks can affect everything from credit card rates and mortgage availability to job stability and market confidence. When lending activity is high, it supports consumer spending, business growth, and investment returns.
Investors don’t seem to be too worried. The KBW Nasdaq Bank Index returns are slightly outpacing those of the S&P 500.
The industry is facing “great expectations” when it starts reporting earnings next week, UBS bank analyst Erika Najarian wrote in a note to clients, with one major question being which banks can deliver after the recent stock rally.
Will Bank CEOs Stay Positive?
If the economy does wobble, banks would suffer as borrowers struggle to repay their loans.
Bank CEOs have been mostly upbeat in recent weeks, however. They’ve cited continued spending from high-income earners, a boom in data center construction supporting the economy and improving corporate sentiment as the tariff picture clarifies.
“I’m optimistic that we’re probably going to see an acceleration as we continue to head into 2026,” Goldman Sachs CEO David Solomon told Bloomberg Television this month, though he noted the job market is undoubtedly “a little bit softer” today.
Banks’ loan portfolios haven’t displayed major cracks this year. Banks only had to write off 0.60% of their loans in the second quarter, up slightly from their pre-pandemic averages, according to the Federal Deposit Insurance Corp. Write-offs remain far below any recession-level numbers—in 2010, for example, that figure stood at more than 2% every quarter.
The U.S. consumer “remains very resilient,” and corporate credit health remains “terrific,” Bank of America’s chief financial officer, Alastair Borthwick, said at a Barclays conference last month.
“Profitability is good. Cash flow is good,” Borthwick said. “We can see corporate America is performing pretty well.”
It’s an upbeat assessment that several other bank CEOs shared at the same conference, according to Barclays analyst Jason Goldberg. It is one reason why banks’ latest earnings results “should continue to exceed expectations,” he wrote in a research note.
He and other analysts expect little deterioration in banks’ portfolios in their upcoming releases.
Late payments on credit card loans have shown consistent improvement, following a period of worsening two years ago when inflation and higher interest rates prompted some deterioration, he noted. Some pressures for loans to older office buildings tied to higher interest rates and shifts in remote work habits seem “well known” by now, he added.
What Could Cause a Reversal in Optimism?
But a prolonged government shutdown could dampen the outlook, he wrote.
Though banks tend to offer temporary relief to affected customers, furloughed government workers may nonetheless cut back on spending, he wrote. Work stoppages at the Small Business Administration or the Department of Housing and Urban Development may also delay loan activity.
A longer shutdown could also prompt temporary market volatility, Goldberg noted, potentially slowing one source of banks’ current catalysts. Wall Street banks are gaining more fees from helping arrange recent public offerings and corporate mergers.
IPOs had their strongest quarter since the end of 2021, when low interest rates were fueling markets, according to the consulting firm EY. Large corporate mergers are also on the rise.
“There is real momentum in the dealmaking environment. I think you’re going to see an acceleration of that into 2026 for sure,” said Solomon, Goldman Sachs’ CEO, though he also noted he “wouldn’t be surprised” if stock markets took a turn in the next two years given their recent gains.
Are More Big-Ticket Bank Mergers Coming?
Increasingly, those mergers are now involving banks themselves. Bank mergers rose to a 4-year high last quarter, according to S&P Global Market Intelligence, with 52 deals announced.
The industry has been consolidating for decades, given banks’ desire to cut costs and combine forces to invest in new technologies. But that activity slowed during the Biden administration, particularly among larger regional banks whose deals faced more scrutiny from Washington, D.C.
Now it seems that bigger bank deals are back. Last month, PNC Financial said it was buying Colorado-based regional FirstBank. A bigger deal came this week: Ohio-based regional lender Fifth Third Bank announced it was buying Dallas-based Comerica Bank.
“The emerging question is whether other large regionals will feel compelled to respond with their own actions,” Piper Sandler’s Siefers wrote.
And with bank stocks hitting fresh highs, the anxiety among bank investors isn’t the loan growth outlook, the path of interest rates or potential troubles in banks’ portfolios, Siefers wrote. Instead, some investors are worried that a regional bank they own will pay too much to buy a competitor.
Fifth Third’s stock price has “held up well” since its announcement, he added, which suggests investors are comfortable with deals “as long as they are fundamentally attractive.”
