The earnings season kicked off last week, with several prominent banks reporting their financial results. Investors will closely monitor the upcoming earnings reports of financial companies to gauge their performance in navigating the challenges posed by the high interest rate environment during the quarter.

M&T Bank Corporation (MTB - Get Rating) and Northern Trust Corporation (NTRS - Get Rating) are scheduled to report their fourth-quarter results on January 18. MTB is expected to report a year-over-year decline in revenue and earnings for the quarter. In contrast, NTRS’ revenue is expected to increase while its EPS is expected to decline over the prior-year quarter.

In this article, I have discussed why avoiding MTB and waiting for a better entry point in NTRS could be prudent.

For the fourth quarter, MTB’s EPS and revenue are expected to decline 18.7% and 8.9% year-over-year to $3.67 and $2.29 billion, respectively. However, the company has a solid earnings history, having beaten the consensus estimates in each of the trailing four quarters.

NTRS’ EPS for the fourth quarter is expected to decline 33.7% from the prior-year quarter to $1.10. On the other hand, analysts expect its revenue to rise 9.9% year-over-year to $1.69 billion. NTRS has failed to surpass the Street EPS estimates in each of the trailing four quarters.

MTB’s net interest income will likely contract in the fourth quarter. Analyst estimates for MTB’s net interest income for the fourth quarter is $1.73 billion, compared to $1.83 billion in the prior-year quarter and $1.78 billion in the previous quarter.

Banks have suffered due to the Federal Reserve’s hiking cycle as it has driven up funding costs at a higher pace than the rise in interest income from loans and investments. Banks’ profitability is expected to take a hit due to the increase in non-performing loans and the cost of deposits.

Despite the recent challenges, the outlook of the banking sector looks bright as some Fed officials have forecasted a soft landing for the economy, and the central bank has also indicated rate cuts this year.

However, the banking sector continues to face risks pertaining to a slowing economy, lower provisioning by banks, a rise in non-performing loans, a growing probability of default of commercial real estate (CRE) loans, sticky inflation, and a delay in implementing rate cuts.

Meanwhile, asset management companies are benefiting from an aging population that’s looking to generate income and create wealth, expansion of investable assets, the emergence of emerging markets, increasing disposable incomes, the accumulation of savings, the growing popularity of passive investments, digitization initiatives, and the adoption of advanced technologies.

Asset management companies are expected to benefit from the expected fall in interest rates. Falling rates are expected to ease the pressure on various asset classes, thereby improving returns for asset managers. Moreover, interest rate cuts could cause bonds to rise, boosting fixed income.

Here is what investors might want to know about the featured stocks ahead of their earnings releases.

M&T Bank Corporation (MTB - Get Rating)

MTB is a bank holding company. The company’s bank subsidiaries include Manufacturers and Traders Trust Company and Wilmington Trust, N.A. It offers retail and commercial banking and others. Its segments include Business Banking, Commercial Banking, Commercial Real Estate, Discretionary Portfolio, Residential Mortgage Banking, and Retail Banking.

For the third quarter, which ended September 30, 2023, MTB’s noninterest income declined 0.5% year-over-year to $560 million. Its provision for credit losses increased 30.4% year-over-year to $150 million. Also, its deposits declined 2.7% year-over-year to $162.69 billion.

Street expects MTB’s EPS and revenue for the quarter ending March 31, 2024, to decline 18.7% and 8.9% year-over-year to $3.67 and $2.29 billion, respectively. Over the past year, the stock has declined 11.1% to close the last trading session at $133.08.

MTB’s grim outlook is reflected in its POWR Ratings. It has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has a D grade for Growth, Sentiment, and Quality. It is ranked #5 out of 10 stocks in the Money Center Banks industry. Click here to see the other ratings of MTB for Value, Momentum, and Stability.

Northern Trust Corporation (NTRS - Get Rating)

NTRS, a financial holding company, provides wealth management, asset servicing, and banking solutions for corporations, institutions, families, and individuals worldwide. It operates in two segments: Asset Servicing and Wealth Management. The company also provides asset management services, active and passive fixed income, cash management, alternative asset classes, and multi-manager advisory services and products.

On December 13, 2023, NTRS announced that it was reappointed as an asset servicing provider for the CAD 103 billion Healthcare of Ontario Pension Plan (HOOPP), including global custody.

On November 16, 2023, NTRS announced that it was selected by Costco Wholesale Corporation to provide custody, daily valuation, and brokerage services for Costco’s defined contribution retirement plan, with $29 billion in assets. Melanie Pickett, Head of Asset Owners, Americas at Northern Trust, said, “We are honored to be selected as asset servicing partner for Costco’s defined contribution plan.”

For the fiscal third quarter, which ended September 30, 2023, NTRS’ total noninterest income increased 2% year-over-year to $1.27 billion. Its return on average assets came in at 0.93%, compared to 0.92% in the prior-year quarter.

The company’s net income declined 17% year-over-year to $327.80 million. Its net income per share came in at $1.49, representing a decline of 17.2% year-over-year. Also, its net interest income decreased 11.1% year-over-year to $456.20 million.

Analysts expect NTRS’ EPS and revenue for the quarter ending March 31, 2024, to increase 8.1% and 0.3% year-over-year to $1.39 and $1.75 billion, respectively. Over the past month, the stock has gained 24.9% to close the last trading session at $83.81.

NTRS’ bleak prospects justify its overall rating of C, which translates to Neutral in our proprietary POWR Ratings system.

Within the Asset Management industry, it is ranked #32 out of 50 stocks. It has a C grade for Growth, Value, Stability, Sentiment, and Quality. To see NTRS’ rating for Momentum, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

MTB shares were trading at $130.91 per share on Tuesday morning, down $2.17 (-1.63%). Year-to-date, MTB has declined -4.50%, versus a -0.19% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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