Capital One Financial Corp
Investors will use Capital One's earnings print as a way to gauge the health of the U.S. consumer economy, using indicators like the provision for credit losses and net charge-offs.
Earnings Expectations By The Numbers: Analysts expect Capital One to issue earnings of $3.22 per share on revenues of $9.12 billion. Last quarter, the bank allocated $2.795 billion for credit losses, marking a surge of nearly $300 million from the fourth quarter of 2022.
Net charge-offs for last quarter stood at $1.697 billion, up 2.21% over the fourth quarter of 2022.
What Other Players Are Indicating: To gauge what might be in store for Capital One after the close, it's worth exploring recent earnings of other large financial institutions.
Wells Fargo & Co
The bank increased its allowance for credit losses to $14.8 billion, up $1.9 billion.
JPMorgan Chase & Co
The bank's net charge-offs surged by $754 million, to $1.4 billion, largely driven by Card Services.
PNC Financial Services Group Inc
Meanwhile, the bank's net loan charge-offs stood stable at $194 million in the second quarter of 2023 compared to the first quarter. Yet there was a noticeable rise of $111 million from the second quarter of 2022, driven by elevated commercial and consumer net loan charge-offs.
Discover Financial Services
Morgan Stanley
The Underlying Thread, Commercial Real Estate: Commercial real estate, or CRE, is proving to be a recurring theme across the board, as most of the banks above said they've set aside capital for CRE loans.
The trend underscores the growing strain on this sector, particularly in office buildings, due to high interest rates and remote work.
Despite the CRE challenges, all banks are seeing significant upticks in net interest income, suggesting they are still feeling the tailwinds of the Federal Reserve's latest interest rate hike campaign.
Benzinga's Take: Drawing from the uptick in net charge-offs observed across major banks, there's an indication of increasing stress in the U.S. consumer economy.
In essence, net charge-offs represent debts the above institutions believe are unlikely to be recovered, suggesting that more consumers are defaulting or falling behind on their credit obligations.
The trend is likely driven by inflationary pressures and still-high housing and rental costs.