Big Banks Face Test as Earnings Season Begins

Major US banks enter third-quarter earnings season with strong credit quality, but investors will assess the effects of higher interest rates, slower investment banking activity and potential risks tied to AI financing. Bloomberg Intelligence analyst Herman Chan flagged wealth management as a possible bright spot at Morgan Stanley and JPMorgan, alongside credit quality and executive succession updates.

Analysis

The key earnings signal is the composition of revenue, not simply whether results beat: sustained wealth-management fees could cushion weaker investment-banking activity, while higher rates are a two-sided test of asset repricing versus deposit-cost pressure. For JPM and Morgan Stanley, compare fee growth, net interest income guidance, deposit pricing and credit migration; a strong headline quarter with weaker forward deposit or credit commentary may be a sell-the-news setup.

Credit risk is a lagging catalyst over the next 1–3 months: stable current measures do not rule out deterioration as borrowers refinance at higher costs. AI-financing exposure is a narrower, longer-dated tail risk, not yet a basis for extrapolating broad bank losses. Verify whether management discloses material concentration, underwriting standards or collateral sensitivity before trading that theme. Succession commentary is likely secondary unless it changes strategy or risk appetite.

Contrarian angle: markets may over-credit higher rates as an earnings tailwind and underweight deposit competition and delayed credit losses. Conversely, if fee resilience and credit metrics hold, broad bank-risk hedges could be overdone. The article alone does not establish a differentiated earnings or valuation edge between JPM and Morgan Stanley.

Key Decisions for Investors

• Avoid a directional pre-earnings position based on this signal alone; treat the event as a read-through on revenue mix and forward guidance rather than a simple beat/miss trade.
• After results, consider a relative-value position only if the disclosed data supports it: favor the name with stronger wealth-fee trends and steadier deposit costs, and underweight the one showing worsening credit migration or weaker forward net interest income. Do not assume either JPM or Morgan Stanley wins before those metrics are available.
• Track 30–90 day catalysts: deposit-cost commentary, delinquency and net charge-off trends, investment-banking pipeline, and any quantified AI-related lending concentration. Reassess if guidance or reported credit measures deteriorate materially.
• Falsification: the cautious view weakens if both firms show stable credit indicators, resilient fee income and controlled deposit costs; it strengthens if credit migration rises or management lowers forward net interest income expectations.