This Week in Earnings

This earnings season, U.S. Banks are reporting largely solid results relative to Street expectations with most posting Q2 beats on the top- and bottom-line. Broadly speaking, results have been buoyed by strength in capital markets and investment banking, which offset still-muted loan growth amid ongoing headwinds from inflation and higher rates. Echoing sentiment from Q1, executives expressed optimism around an expected pickup in M&A activity in the second half of 2024 with some suggesting Q2 may mark the low point for net interest income (NII).

While deposit flight in search of yield remains a challenge, executives note pressures there have been abating. Views regarding the U.S. consumer remain largely sanguine, though a stark divide is noted between higher earners, who continue to spend, and lower income groups feeling the strain from inflation and higher rates. While commercial real estate (CRE) remains a soft spot, executives have downplayed challenges, noting they are “manageable”. Election uncertainty — both in the U.S. and abroad — also garnered attention as a topic of interest during conference calls, in line with findings from our Inside The Buy-Side® Earnings Primer® published last week.

Taken together, recent economic indicators, the sustained strength of the U.S. economy, and CRE workouts moving ahead with some steam are supporting increased confidence among bank executives who suggest that conditions will coast into more normal territory as in the back of this year and into the next. However, nearly all remain cautious in their macroeconomic commentary, mindful of the geopolitical risks that continue to loom large and a “stabilizing” consumer lending backdrop.

Key Themes

• Macro and Outlook: A Return to Normalcy on the Horizon? Cooling Inflation and Renewed Equity and Deal Market Strength Spark Confidence, though Execs Mull Over Persistent Uncertainties, Including High Interest Rates and the Impending U.S. Election
• Consumer Health: Stark Divide as High Earners Drive Spending, Offsetting Weakness in Lower Income Groups; Execs Point to 2H Stabilization of Charge-offs and Delinquencies
• Loan Growth: Economic Caution and Higher Interest Rates Continue to Mute Demand Despite Some Positive Signals; CRE Remains a Sore Spot, But Is “Manageable”
• Artificial Intelligence: Trillions in Infrastructure Spend Expected as Integration Accelerates, Enhancing Productivity, Client Service, and Operational Efficiency; U.S. Bank Execs get Specific and Tout Use Case Examples
• M&A: As Market Conditions Improve, Executives Tout “Early Stages of a Multi-year Investment Banking-Led Cycle”