On The Fly: What to watch in bank space earnings reports

Bank of America (BAC) is scheduled to report quarterly results on October 13, while Morgan Stanley (MS) and Goldman Sachs (GS) are scheduled to report on October 17. What to watch for: 1. OUTLOOK: During the company's last earnings call, Bank of America said it expects net interest income to increase in Q3. The bank also said its asset quality "remains strong," that it is "positioned to benefit from higher interest rates," and is making "progress towards financial targets, while increasing capital return to shareholders." Additionally, Bank of America CFO Paul Donofrio noted that the bank expects to issue less debt in the second half of 2017. Last month, the bank said Q3 trading revenue will "probably decline 15%," but that it sees Q3 loan and deposit growth, and returning over 100% of profit to shareholders. Meanwhile, Goldman Sachs said that it sees $5B in revenue growth opportunities over the next three years, and over $2.5B in pre-tax earnings opportunities and 150bps ROE expansion opportunities in the same period. 2. RETURN POTENTIAL: On August 9, Wells Fargo analyst Mike Mayo resumed coverage of Goldman Sachs with an Outperform rating and $265 price target. The analyst told investors that he prefers Goldman over Morgan Stanley, arguing that it has about "twice as fast" organic revenue growth for more than 20 years, and "much faster" earnings growth over 15 years. A month later, Ben Levisohn wrote in an edition of Barron's, that while Goldman Sachs is rarely thought of as an underdog, it might be right now. Goldman's decline is a result of its own missteps, Levisohn noted, adding that if it can correct its problems, its stock may be able to close the performance gap with its peers. Last week, Credit Suisse analyst Susan Roth Katzke upgraded Morgan Stanley to Outperform from Neutral given the over 10% total return potential in the shares. The analyst also raised her price target on the shares to $54 from $49. 3. STOCK RECOVERY: Less bullish, UBS analyst Brennan Hawken downgraded Goldman Sachs to Neutral back in July, saying the market seems to be pricing in an inflection in its trading revenue despite weakness, suggesting a recovery is needed to justify 2018 consensus estimates. The analyst told investors at the time that he sees better opportunities for investors, such as Morgan Stanley, given his "limited confidence" in a revenue recovery. Meanwhile, last week, Credit Suisse analyst Susan Roth Katzke also downgraded Goldman Sachs to Neutral from Outperform, citing the recovery in the shares and the now more limited total return to her target price, which she raised to $255 from $240. 4. REGULATORY-RELIEF ACTIONS: While a major overhaul is unlikely, recent proposals by the Treasury Department to ease the regulatory burden on banks and support greater lending may lead to some changes, Andrew Bary wrote in a July edition of Barron's. Big banks, such as Morgan Stanley, JPMorgan (JPM), Goldman Sachs, Citigroup (C), State Street (STT), and BNY Mellon (BK), could get a cumulative earnings boost averaging 30% if a series of regulatory-relief actions take place, the report noted, citing a report issued by KBW analysts Brian Kleinhanzl and Michael Brown.