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Below the Quote on Equity strategy: Q3 bank earnings takeaways so far By Mathieu Racheter, Head of Equity Strategy Research, Julius Baer

The first Q3 bank results show resilience in lending and net interest income, alongside a more uneven capital-markets picture. The divergence across businesses reinforces the case for selectivity.

The first wave of Q3 results from major US banks (JP Morgan, Citigroup, Goldman Sachs, and Bank of America) is in, offering some reassurance after the recent sell-off. Investors had worried that investment banking revenues were peaking just as higher rates threatened lending and credit quality. So far, the results suggest that fears of a broad earnings setback were overdone. Net interest income provides the first encouraging signal. It grew by 5%–14% year on year at the four universal banks, as expanding loan and deposit balances, asset repricing, and markets activity supported revenues. Higher funding costs remain a risk, but they have not prevented income growth. The concern that higher rates would quickly undermine the lending business has yet to materialise. Capital-markets activity also held up better than the nervous mood suggested. Equities revenues increased at all five banks, while advisory and underwriting revenues generally remained above last year’s levels. There was a seasonal decline from Q2, but little evidence of a broad collapse in client activity. For investors, this supports staying selective rather than stepping away from banks altogether. In Europe, we favour retail banks with resilient net interest income, tight cost control, and strong capital generation supporting dividends and buybacks. If uncertainty in France persists, we would lean towards Scandinavian banks over euro-area peers.

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