KBW CEO Tom Michaud notes that bank stocks have underperformed by 10 percentage points since July 15. Despite this, he attributes the market decline to interest rate concerns rather than deteriorating fundamentals. Major institutions, including JPMorgan Chase, Goldman Sachs, Citigroup, and Wells Fargo, are scheduled to report their third-quarter results on October 13.
The 10-year Treasury yield reached approximately 5.35% this week, marking its highest level since 2002. KBW utilized artificial intelligence to analyze second-quarter earnings transcripts, finding that mentions of net interest margins were 60% higher than the three-year average. Regression analysis indicates that these margin forecasts are the primary driver of current bank stock performance.
Investment banking profits for the third quarter are projected to grow by roughly 10% year over year, supported by a backlog in private equity. Meanwhile, insider activity has reached a 23-year low, with fewer executives purchasing company shares. Michaud also noted that unrealized bond losses currently represent 5% of industry tangible capital, compared to 19% in 2023.
KBW’s long-term modeling for 200 banks suggests that tangible common equity will reach nearly 10% by 2028, up from 6.5% prior to the global financial crisis. While return on tangible capital remains in the high teens, Michaud anticipates potential isolated credit issues following a prolonged period of low credit costs. Larger banks may face pressure to slow share buybacks due to bond market volatility.
