Profits at these giants should fall from last quarter, as their revenues from trading, dealmaking, and financing are expected to retreat from the levels that powered standout second quarter results, according to analyst estimates compiled by Bloomberg. Still, most are expected to show profits rose from a year ago, with Bank of America and Morgan Stanley expected to prove the exceptions.\u00a0 <\/p>\n
“Right now, you look out the window, and it feels okay. I think this is more about the risks than what’s happening out the window,” said Brendan Coughlin, president of regional lender Citizens Financial Group (CFG<\/a>), which reports later next week.\u00a0 <\/p>\n The mood among investors has already soured. Collectively, these five banks have shed about $270 billion in market value from their respective summer highs through Friday’s close, even as the S&P 500 (^GSPC<\/a>) remains up roughly 14% this year. <\/p>\n “A great deal of the recent underperformance for banks has been driven by the dramatic rise in long-term rates,” UBS analyst Erika Najarian recently told clients. A Truist Securities survey earlier this month found just 35% of institutional investors expect bank stocks to outperform the broader market, down from 68% in July and 82% in December. <\/p>\n The key focus for investors next week is less on what higher borrowing costs mean for third quarter profits than on whether the rapid repricing of money will begin to undermine the unusually strong activity that defined 2026’s first half.\u00a0 <\/p>\n Higher rates can initially lift banks’ lending income, but they also raise deposit and wholesale funding costs, pressure bond portfolios, and complicate math for dealmakers.\u00a0 <\/p>\n The speed of the move in rates also adds unease. Macquarie strategists noted this week that many of the highest-profile financial blowups<\/a> over the past 50 years happened shortly after abrupt moves in long-term bond yields. <\/p>\n Trading results are expected to bring the most immediate evidence for a Wall Street slowdown. In September, bank executives telegraphed softer activity<\/a>, particularly in fixed income, compared to the frenzy that kicked up this spring.\u00a0 <\/p>\n Higher financing costs also raise the stakes for whether momentum in this year’s investment banking surge can continue into 2027. Several companies, including\u00a0smart ring maker Oura,<\/a>\u00a0have postponed plans to go public, citing market conditions. In a sign that even AI-related firms faced a higher capital hurdle, Nvidia-backed Firmus Grid abruptly shelved public listing plans this week<\/a> after investors balked at its proposed valuation. Global merger and acquisitions deal announcements also slowed sharply during the third quarter<\/a>. <\/p>\n But the caution hasn’t eliminated the opportunity Wall Street sees financing the AI build-out, which could churn out years of debt, equity and advisory work for banks. <\/p>\n “Yes, the interest rate environment is not helpful, but as a topic in the boardroom, M&A hasn’t slowed down,” Guillermo Baygual, Citigroup’s global co-head of M&A, told Yahoo Finance earlier this week. <\/p>\n A separate focus across all banks is whether executives indicate that deposit and other funding costs will pressure lending margins. The Federal Reserve raised its benchmark policy rate last month amid already fierce competition<\/a> among US lenders to bring in more customer cash. <\/p>\n “Loan growth is easier to find than deposit growth, and so it’s putting pressure on deposit dynamics of raising funds,” Citizens’ Coughlin said. <\/p>\n David Hollerith covers a range of developments throughout the financial sector, from Wall Street to banking and asset management to crypto and fintech. Email him at david.hollerith@yahoofinance.com. Follow him on X at @DsHollers. <\/p>\n<\/a> JPMorgan is among the big Wall Street banks reporting earnings this coming week. (Reuters\/Eduardo Munoz\/File Photo) \u00b7 Reuters \/ REUTERS <\/p>\n