To The Moon

Wall Street’s earnings season starts with a critical test for America’s biggest banks.

$JPMorgan Chase(JPM)$, $Goldman Sachs(GS)$, $Wells Fargo(WFC)$ and $Citigroup(C)$ report third-quarter results on October 13, with investors looking for evidence that banks can sustain earnings despite economic uncertainty.

Here’s the number that matters beyond headline profit: how much of that profit survives after credit losses and rising costs are accounted for.

💰 1. Higher rates aren’t a guaranteed win

Banks earn interest on loans and investments while paying interest on deposits and other funding.

When lending rates rise faster than funding costs, net interest income can improve. But the relationship isn’t automatic.

Customers may demand better deposit rates, loan growth can weaken, and higher borrowing costs can put pressure on borrowers.

Investors should look at net interest income alongside net interest margin (NIM), which measures how effectively a bank earns from its interest-bearing assets relative to its funding costs.

📊 2. Credit provisions could tell the more important story

Banks set aside provisions for expected credit losses. These provisions reduce earnings and can increase when lenders expect more borrowers to struggle with repayments.

According to S&P Global Market Intelligence’s October 9 consensus estimates, third-quarter net interest income for four major US banks was expected to rise 9.6% year over year in aggregate.

But the outlook differs by bank. Wells Fargo faces greater expected margin pressure, while JPMorgan’s projected net interest income growth is stronger.

Credit quality also deserves attention. Analysts expect provisions to remain broadly manageable, although some normalisation is emerging from previously favourable conditions. These are forecasts, not reported results. 

⚠️ 3. The warning sign investors shouldn’t ignore

A bank can beat earnings expectations and still disappoint the market.

If profits rise because lending income and trading revenue are strong, that’s encouraging. But if provisions also increase sharply, investors may question whether current earnings are sustainable.

I’d watch three indicators in each report:

🔹 Net interest income: Is core banking revenue growing?

🔹 Credit-loss provisions: Are expected losses rising faster than the business can absorb?

🔹 Management guidance: Are executives confident about loan demand and credit quality over the coming quarters?

JPMorgan CEO Jamie Dimon has cautioned that economic risks remain elevated, making management commentary particularly important. 

🎯 MY TAKE

I wouldn’t judge this earnings season on headline EPS alone.

The strongest results will need to show that banks can generate sustainable income while maintaining disciplined lending standards.

A rise in provisions isn’t automatically a red flag: it can reflect prudent risk management or a growing loan book. The context matters, especially whether actual delinquencies and defaults are deteriorating.

My key question is whether bank profits are growing because the underlying business is getting stronger, or whether today’s earnings are masking risks that could emerge later.

📢 What’s your priority when analysing bank earnings: net interest margins, credit-loss provisions, or management’s outlook for the economy?

Sharing my personal market observations for discussion purposes only.