Banks’ second-quarter profits could show some downside surprises when they start to roll out next week.
Blame it on a whipsawing spike in 10-year Treasury rates — from 1.65 to 2.5 percent — and the sharpest increase in mortgage rates in nearly three decades, which took the wind out of the sails of a refinance-driven home loan market.
JPMorgan Chase and Wells Fargo, scheduled to report results next Friday, are the first to show their hand.
To be sure, banks have been enjoying a resurgence in their respective share prices and have added to their gains in the most recent quarter.
However, June, in particular, proved a rocky month for many Wall Street institutions, fueled largely by fears that the Federal Reserve would put the brakes on its easy-spending ways.
Fixed-income trading is likely to be impacted most by the run-up in rates.
Indeed, Citigroup analyst Keith Horowitz believes that trading-heavy Goldman Sachs will miss earnings estimates given the June rate swings.
The analyst lowered his second-quarter earnings estimate for Goldman to $2.70 a share from $3.10. Morgan Stanley, which received the regulatory green light to complete its purchase of Smith Barney from Citi, will earn 42 cents, Horowitz estimates.
JPMorgan Chase CEO Jamie Dimon suggested publicly early last month that the global bank may be seeing a 10 to 15 percent increase in trading revenues vs. the same period last year.
But bread-and-butter home loans are likely to be another story entirely for JPMorgan and Wells Fargo. Indeed, refinance applications fell 15.6 percent and purchases ticked down 3.1 percent the last week in June, the Mortgage Bankers Association said.
JPMorgan’s second-quarter consensus earnings are expected to be $1.42.