Tomorrow 3Q23 earning season begins for the US banks. Compared to last quarter analysts are more sanguine going into this quarter’s earnings season. In our universe of 285 US Banks with sell-side analyst coverage, the median revision since August 31st in next twelve months earnings (NTM) EPS estimates has been 0%. The skew is to the downside, however. Of the 46.7% in the universe with a downward revision, the average revision was -2.8% while those receiving an upward revision the average was just 1.6%. Compare this with the equivalent pre-earnings season revision in 2Q23 (i.e. May 31 to 2Q23 earnings release). The median revision was -3.0% with 79.0% in the universe receiving a downward revision which averaged -5.9% while those receiving an upward revision the average was just 1.0%.
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Despite this relative optimism from analysts, we at Cybiont Capital remain bearish anticipating further downward revisions to analysts’ NTM EPS estimates post 3Q23 results on our expectation of three broad themes emerging from results.
- Continued NIM compression albeit at a slower pace than 2Q23’s rate reflecting decelerating funding cost increases and accelerating loan yield expansions.
- Anticipated announcements from Bank management over restructurings on underwater securities books
- Incipient deterioration in credit quality expressed as rising non-performing loan formation rates most prominently in non-prime unsecured and auto loans as well as non-owner occupied CRE.
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