US Bank Earnings Surpass Wall Street Expectations

Summary

---

Bloomberg Intelligence: US Bank Earnings Surpass Wall Street Expectations

Hosts: Paul Sweeney & Scarlet Fu
Guest: Herman Chan, Senior Bank Analyst, Bloomberg Intelligence
Air Date: July 14, 2026

---

Episode Overview

This episode dives into a busy earnings day for large U.S. banks, focusing on how these institutions have not only met but surpassed already-high Wall Street expectations. With robust performances in trading and continued strength in credit quality, the conversation explores which factors drove these results—and whether they’re sustainable. The episode also covers the impact of recent regulatory easing, its effects on profitability, and what key return ratios look like across top banks.

---

Key Discussion Points & Insights

1. Surpassing High Expectations

• Context:
  The episode opens on an extremely active earnings day, with multiple major banks reporting results.
• Highlights:
  • Most big banks beat high expectations, especially in equity trading.
  • Source of strength: Trading activity, including some high-profile deals (e.g., trading related to SpaceX).
  • Sustainability is in question, as some drivers were quarter-specific.
• Notable Quote:

  “We had robust results, knocked it out of the park, particularly in equity trading… Some of the activity in the second quarter was really driven by the trading activity from SpaceX and the like that may be a bit more idiosyncratic to the quarter, but still really strong trading results expected for the back half of the year.”
  — Herman Chan (02:06)

2. Credit Quality Holds Strong

• Context:
  Focus on banks with significant lending books, like Wells Fargo, Bank of America, Citi.
• Highlights:
  • Credit quality remains resilient despite economic uncertainty and expectations of “higher for longer” interest rates.
  • Wells Fargo saw a 10 basis point drop in net charge-offs led by lower commercial loan losses.
  • Commercial borrowers, in particular, appear to be handling conditions well.
• Notable Quote:

  “Credit quality has been really strong…So the commercial borrowers have been able to weather some of this economic uncertainty and expectations for rates to be higher for longer. So we're actually pretty sanguine about the credit quality for the group, at least in the near to intermediate term.”
  — Herman Chan (02:50)

3. Return Ratios Exceed Targets

• Context:
  The conversation pivots to the most-watched banking metrics: return on tangible common equity (ROTCE).
• Highlights:
  • JP Morgan: Adjusted ROTCE at 23%, well above their long-term target of 17%.
  • Citi: ROTCE at 13%, outpacing their target range of 10–11%.
  • These ratios are robust across all reporting banks.
• Notable Quote:

  “Those were strong across the board. You see this in JP Morgan’s adjusted ROTCE 23, their target over the longer term, 17%. Even banks that are at the lower end of the spectrum… Citi, we’re seeing ROTCE at 13% and their target… is only 10 to 11%. So they’re vastly outstripping their targets and expectations.”
  — Herman Chan (03:28)

4. Impact of Easing Capital Regulations

• Context:
  Discussion shifts to macro policy: how looser capital requirements are influencing returns and bank behavior.
• Highlights:
  • Lower equity capital ratios mean banks can allocate more capital to dividends, buybacks, and increased lending.
  • Leads to “systematically” higher returns.
  • Recent stress tests resulted in major dividend increases (10-12%).
• Notable Quote:

  “That’s another positive story for the banks… Easing capital regulations create more flexibility on the balance sheet. So returns will go higher systematically because there’s lower equity capital ratios… Banks really lifted their dividends by 10, 11, 12% across the board.”
  — Herman Chan (04:16)

---

Timeline of Key Segments

• 01:38 — Episode launches into bank earnings coverage, sets the landscape for a “busiest ever” day.
• 02:06 — Breakdown of trading-driven earnings, with a focus on whether results are repeatable.
• 02:50 — Discussion on the resilience of bank credit quality and commercial lending performance.
• 03:28 — Highlighting ROTCE and banks exceeding internal and market expectations.
• 04:16 — Analysis of regulatory easing, dividend hikes, and capital allocation trends.

---

Memorable Moments & Quotes

• On Bank Performance:
  “We had robust results, knocked it out of the park…”
  — Herman Chan (02:06)

• On Credit Quality:
  “We’re actually pretty sanguine about the credit quality for the group, at least in the near to intermediate term.”
  — Herman Chan (02:50)

• On Profitability Ratios:
  “Vastly outstripping their targets and expectations.”
  — Herman Chan (03:28)

• On Capital Flexibility:
  “Returns will go higher systematically because there’s lower equity capital ratios.”
  — Herman Chan (04:16)

---

Conclusion

This episode provides a concise, data-driven review of a banner quarter for U.S. banks, with in-depth analysis from industry expert Herman Chan. Key takeaways: trading was a star, credit portfolios are holding up, banks are handily beating their own targets, and regulatory relief is driving even greater returns to shareholders. Though some gains may be one-off, the backdrop remains “constructive”—a rare moment of optimism across the sector.

---

Transcript

[Financial Independence Advocate]

I don't love the word retirement because I think it has negative baggage. I like the word financial independence. If you were to be financial independent, like how would you spend your time? I think that's a better way to think about the end of life stage versus quote, unquote retirement.

[IBM AI Representative]

So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a Global workforce of 300,000 can use AI to fill their HR questions. Resolving 94% of common questions, not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business.

[Optum Healthcare Spokesperson]

IBM Healthcare doesn't always work great. If you've ever waited on a refill or couldn't schedule an appointment, you get it. That's the kind of stuff Optum is changing. They're using data and technology to integrate patient care, pharmacy and everything else. So healthcare is connected, not complicated. What's that look like? Cheaper prescriptions that are easier to get and care that looks at the whole person how you need it. Optum is helping make healthcare work as one for everyone. Learn [e-mail]

[Bloomberg Intelligence Host]

Bloomberg Audio Studios podcasts radio news. You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.

[Bloomberg Intelligence Interviewer]

A lot of movers out there in the marketplace, including the big banks, because, man, it's the busiest day I've ever seen for big bank earnings. Just all coming in on one day here. So we've been checking in with our good friend Herman Chan, who covers all the banks for Bloomberg Intelligence. So I guess my takeaway, Herman, is they beat expectations generally, which is. And expectations were high coming into this quarter. What are they saying about the back half of the year? I guess that's probably the bigger issue.

[Herman Chan]

Yeah, that's right. That's the chief question on the earnings calls today. We had robust results, knocked it out of the park, particularly in equity trading. The can this be sustained at least? From the JP Morgan earnings call earlier this morning, management said that while it's hard to replicate the second quarter earnings results from equity trading in particular, there's still a constructive backdrop. Some of the activity in the second quarter was really driven by the trading activity from Space X and the like that may Be a bit more idiosyncratic to the quarter, but still really strong trading results expected for the back half of the year.

[Bloomberg Intelligence Interviewer]

What are the, the banks with the big lending books like Wachovia, like B of A Lake City, what are they saying about the credit quality out there?

[Herman Chan]

Yeah, credit quality has been really strong. You see that in Wells Fargo in particular, their net charge offs for the quarter, their loan losses were, were down about 10 basis points. And that was really led by much lower commercial loan losses in particular. So the commercial borrowers have been able to weather some of this economic uncertainty and expectations for rates to be higher for longer. So we're, we're actually pretty sanguine about the credit quality for, for the group, at least in the near to intermediate term.

[Bloomberg Intelligence Interviewer]

What are some of the return ratios that you and bank investors look at and how are they trending these days?

[Herman Chan]

Yeah, returns and return on tangible common equity in particular is the key banking metric that we look at. And those were strong across the board. You see this in JP Morgan's adjusted ROTC 23, their target over the longer term, 17%. Even banks that are at the lower end of the spectrum, banks like a Citi, we're seeing ROTC at 13% and their target for the year is only 11, 10 to 11%. So they're vastly outstripping their targets and their expectations. And that's happening across the board for the banks that reported today.

[Bloomberg Intelligence Interviewer]

All right, so in that context, how the easing regulations on the banks, how they impacted their performance and those types of ratios.

[Herman Chan]

That's right. So that's another positive story for the banks, particularly the big ones, where we have easing capital regulations that will create more flexibility on the balance sheet. So that's in terms of both buybacks, that's in terms of dividends, that's in terms of increasing their lending capacity. And that means there's less equity component on the balance sheet, which is inversely related to returns. So returns will go higher systematically because there's lower equity capital ratios. So all in all, a really good story you just saw from the stress test where after that, in the aftermath, banks really lifted their dividends by 10, 11, 12% across the board.

[Bloomberg Intelligence Host]

This is the Bloomberg Intelligence podcast, available on Apple, Spotify and anywhere else you get. Your podcasts listen live each weekday 10am to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn and the Bloomberg Business app. You can also watch us live Every weekday on YouTube and always on the Bloomberg terminal.

[Optum Healthcare Spokesperson]

Healthcare doesn't always work great if you've ever waited on a refill or couldn't schedule an appointment, you get it. That's the kind of stuff Optum is changing. They're using data and technology to integrate patient care, pharmacy and everything else. So healthcare is connected, not complicated. What's that look like? Cheaper prescriptions that are easier to get and care that looks at the whole person how you need it. Optum is helping make healthcare work as one for everyone. Learn [e-mail] wise is the smart way

[Wise App Advertiser]

to manage the currencies you need around the globe. When you send money abroad using your bank, you could get hit with hidden fees and exchange rate markups. There's a better way, try Wise. Wise uses the exchange rate you'd usually find on Google, with no unwelcome surprises. Plus, most transfers happen in under 20 seconds, which means your money arrives in less time than you've been listening to me. It's simple and free to sign up when you download the WISE app. Be smart, get WISE Ts and Cs

[Michigan Business Promotion Speaker]

apply as industries evolve faster than ever, companies need an environment that accelerates strategic growth, and Michigan delivers on that promise. From emerging startups to global enterprises, Michigan offers what executives value most a resilient, innovative ecosystem, diverse communities that attract top talent, and a quality of life that supports work life. Balance with our unified team Michigan approach businesses scale faster and compete at the highest level. Michigan Pure Opportunity Seize your [e-mail].