JPMorgan and Bank of America led a parade of performance among the largest U.S. banks, ending a difficult year.

Tough economic conditions, the ongoing impact of inflation, high interest rates and a lack of quarterly trading have led to downward revisions to earnings estimates for five out of six banks over the past three months.

JPMorgan Chase JPM,
+0.47%
It was the only bank to see its earnings estimates revised upward during the quarter.

“The big banks appear to be under pressure on their net interest income,” said Brian Mulberry, client portfolio manager at Zacks Investment Management. “This is having a negative impact on the group’s profits and future guidance,” he said. “Lack of loan demand, lack of M&A activity and little IPO business are hurting the profitable activities of the big banks, in addition to paying 5% to money market depositors.”

Fourth-quarter earnings expectations were mostly down, but shares of all the big banks rebounded during the quarter after a dismal year that weighed on the industry with the bankruptcies of Silicon Valley Bank, Signature Bank and First Republic Bank. (see chart below)

Stocks have moved into bullish territory since November, when Wall Street began betting that the U.S. Federal Reserve would complete raising interest rates and begin cutting them in 2024.

Huntington Private Bank HBAN,
+2.24%
Chief investment officer John Augustine told MarketWatch in November that bank stocks are becoming more desirable amid expectations of a positive yield curve in the second half of 2024.

KBW analyst David Konrad told MarketWatch on Friday that he has given buy ratings to Goldman Sachs, Morgan Stanley and Wells Fargo WFC.
+1.59%.

Fourth quarter earnings expectations were mostly lower for banks. That’s because analysts believe major changes to the business won’t happen anytime soon.

“Capital market activity remained very quiet,” he said. “Compensation costs for banks are also higher because banks want to retain bankers in anticipation of a better 2024.”

The banks are also trying to repay the billions of dollars the Federal Deposit Insurance Corp. spent to provide coverage for uninsured deposits at Silicon Valley Bank and other banks. These payments will have a small impact on fourth quarter earnings.

But despite the lack of mergers and acquisitions and initial public offerings (IPOs), capital markets activity surged in some regions in the fourth quarter, said Chris Marinac, an analyst at Janney Montgomery Scott.

“The market had really good months for the fixed income sector in November and December,” Marinac said. “It could be a year-end gift.”

Marinac said the cost of capital that banks use to fund loans fell slightly during the quarter as the economic storm continued for the sector, giving the sector another boost.

Also read: Deep Dive: As the industry approaches a turning point, these two bank stocks shine.

On the public policy front, banks were prominent during the quarter as they pushed back against proposed capital requirements under the Basel III endgame regime, first introduced after the global financial crisis to strengthen the international financial system.

Chief executives of the largest U.S. banks, including six that are scheduled to report earnings at their annual meetings on Capitol Hill this year, said mortgages and small loans would become more expensive under proposed capital rules.

Analysts raised their profit estimates for JPMorgan Chase.

Analysts expect JPMorgan Chase & Co. to report fourth-quarter earnings of $3.45 per share on revenue of $39.7 billion, according to Factset Consensus estimates.

The revenue outlook is slightly more optimistic than the $3.42 per share estimate at the start of the quarter.

Despite headwinds in the sector, JPMorgan’s massive scale and diverse revenue lines have helped it outperform peers in the sector.

Morgan Stanley’s James Gorman said last month that JPMorgan Chase CEO Jamie Dimon was the best banking executive in the world, an unusual move for a rival bank CEO.

Dimon, not one to mince words, said last October that “this may be the most dangerous time the world has seen in decades” due to wars in Ukraine and the Middle East and armed conflicts in Asia.

Also read: JPMorgan’s Jamie Dimon sees a soft landing as less likely than others.

One of the key metrics Wall Street will be watching in its upcoming earnings report is JPMorgan’s outlook for net interest income and net interest income excluding markets.

In October, the bank raised its 2023 net interest income forecast, excluding markets, to $89 billion from $2 billion. Forecast figures for 2024 are expected to be released on Friday.

JPMorgan’s stock ended 2024 up 26.9% this year, better than any other large bank. The S&P 500 is up about 24% in 2023.

Analysts lowered Citigroup profit forecasts due to the bank’s restructuring.

Citigroup C,
+1.08%
That’s because the company said it plans to disclose job cuts and other impacts of a major restructuring effort led by CEO Jane Fraser.

With all these changes in place due to severance costs and other concerns, analysts have drastically reduced their fourth-quarter revenue estimates.

Citigroup is currently expected to post earnings of 9 cents per share on revenue of $18.62 billion. At the beginning of the quarter, analysts expected fourth-quarter earnings of $1.06 per share.

On Dec. 7, Citi Financial CEO Mark Mason said the bank expects to record about $1 billion in severance costs during the quarter. This figure will affect the company’s bottom line.

Citigroup stock ended the year up 13.7%.

Bank of America gains follow poor 2023 stock performance

Analysts are currently predicting Bank of America BAC,
+1.66%
It would earn 60 cents per share on revenue of $23.87 billion, according to consensus estimates from FactSet.

At the beginning of the quarter, Bank of America was expected to earn 74 cents per share.

During the quarter, Bank of America CEO Brian Moynihan said pent-up transaction demand was fueling optimism around the bank.

He also doubled down on the bank’s commitment to net-zero emissions efforts, despite pushback from across the political spectrum.

Overall, Wall Street has been the least optimistic about Bank of America’s stock price compared to other large banks.

Bank of America’s stock has risen about 1.7% in 2023, below that of its five competing megabanks.

Morgan Stanley appoints new CEO Ted Pick

Morgan Stanley CEO Ted Pick officially took the helm of the investment bank on Jan. 1, after nearly 14 years in the role under current Chairman James Gorman.

The fourth-quarter results will mark Pick’s first major appearance as CEO, although he will not officially take charge of the bank until the final three months of 2023.

Also read: Morgan Stanley’s new CEO Ted Pick has ‘big shoes to fill’ as he faces challenging markets, analyst says.

Morgan Stanley is expected to report fourth-quarter sales of $12.9 billion and earnings of $1.14 per share. At the beginning of the quarter, analysts estimated the bank would earn $1.28 per share.

Tom Glocer, an independent senior director at Morgan Stanley, told Reuters last month that Pick has a reputation for being disciplined and cool-headed.

Inside the bank, Pick was credited with reducing the bank’s exposure to the collapse of Archegos Capital Management in 2021, according to a Reuters report.

Morgan Stanley lost $900 million but avoided much larger costs to other banks.

Morgan Stanley’s stock price rose about 9.7% in 2023.

Goldman, Wells Fargo’s quarterly profit expectations cut.

Wells Fargo is expected to report earnings of 93 cents per share on revenue of $20.35 billion.

The company’s earnings estimate at the start of the quarter was $1.07 per share.

Wells Fargo’s stock price is up 19.2% in 2023.

Goldman Sachs is expected to post revenue of $11.04 billion and earnings of $4.39 per share. The bank’s earnings estimate fell more sharply than other large banks, from $6.67 at the start of the quarter.

Goldman Sachs stock price rose 12.34 in 2023.

Also read: This earnings season will be the first big test of the market’s year-end rally. The forecast doesn’t seem to be very good.