This post was originally published on this site.
00:00 Speaker A
What do you think earnings growth looks like in 2026? As you try and model that, what do you see?
00:06 Nathan
I mean, we think it’s going to be pretty darn strong to be to be honest. You know, we’ve got earnings going up about, uh, 10 10% assuming that that credit holds stable. If it deteriorates uh a little bit further, which we think is a good possibility, we’ve still got modest earnings growth uh across the the group and returns still being pretty favorable.
00:30 Nathan
You know, we’ve probably been overly bearish on that just with the idea that we’re going to have a cycle at some point and we thought we had continued credit normalization, but these early prints give some confidence that maybe there’s a little bit further legs in the credit cycle here.
00:46 Nathan
Again, our baseline forecast is for earnings to go up uh a few percentage points and that will be uneven across the group. You know, some banks will will do better, the bigger guys with investment bankings and market businesses could could outperform that. Those who are more reliant on lending for for their earnings might be closer to to that number that we see coming in.
01:10 Nathan
But even if there is deterioration, we’re not expecting anything really that that troubling and and very much manageable and still allow for greater capital return to investors. And when you think about the smaller regionals, still allow them to do things like more acquisitions, which we’ve seen bank M&A activity pick up in Q4 and think that will be a big story of 26 as well.
01:34 Speaker A
You mentioned something earlier, Nathan, I just want to circle back on, President Trump’s cap on uh credit card rates. Uh, you know, we heard from City, Bank of America, JP Morgan executives making it clear they have some questions and concerns about that idea. I am curious as an analyst who covers this space, how are you thinking through it?
01:58 Nathan
I think all the banks were careful to not just throw it away as is rhetoric. I mean, I think that they recognized that if it came to pass, it would be a big hit to their earnings. Uh, but but I think also they recognize and and most do in the investment community, if it did come to pass, that it would really limit credit to a lot of consumers. One of the reasons why those rates are where they are is simply to compensate for the risk that these institutions are taking. So, I mean if you had a credit cap, I think you’d find a lot of consumers pushed out of the card market and probably go to places where there are higher rates like payday loans.
02:40 Nathan
So, I’m not so sure it would necessarily be good policy. Not so sure necessarily the president could do it either. It probably needs uh an act of Congress, but if it did come to pass, it it would be a a negative from an earning standpoint. And I think a lot of the banks here who have already reported were trying to meet it and saying, look, we are focused on affordability, we’re trying to serve our customer base. Uh this is something we’re really conscious of.
03:09 Nathan
But it would be a negative if it came to pass, but I I would put not a lot of stock into it and that the Congress would take hold of this.