Next week, the financial report season kicks off, with Morgan Stanley predicting that North American banks will see stability and improvement.

Recently, Morgan Stanley released a research report on the performance outlook and key indicators for North American large banks in the third quarter of 2025 (3Q25). The report includes adjustments to models covering three types of institutions: North American money center banks (Bank of America, Citigroup, Goldman Sachs Group, Inc., JPMorgan Chase, etc.), super regional banks (PNC, Regions Financial Corporation, etc.), and trust banks (New York TrustCo Bank Corp NY, State Street Corporation). This is to provide core forecasts for the bank earnings season that began on October 14. In the report, Morgan Stanley pointed out that based on capital market activity at the end of the quarter, adjustments were made to the models, with the expectation that these adjustments will have a modest impact on earnings per share (EPS), bringing only a 0-1% growth. In terms of EPS estimates, Morgan Stanley's median estimate for the third quarter of 2025 for bank EPS is 3% higher than the market consensus. Among them, money center banks and State Street Corporation (STT.US) have the largest increase in estimates compared to market consensus, with a difference range of 5%-9%. In addition, the bank estimates Citigroup Inc. at $1.99, surpassing the market consensus of $1.83 by 9%; it predicts Bank of America Corp at $1.01, which is 7% higher than the market consensus of $0.94; State Street Corporation is 6% above the trust banks, Northern Trust Corporation (NTRS.US) is 3% higher; most super regional banks show an increase of 1%-3%, with Truist Financial (TFC.US) and Wells Fargo & Company (WFC.US) 3% higher. The bank's model has included the macro assumption of an additional 125 basis points rate cut by the end of 2026, and it has identified Citigroup, Bank of America Corp, Goldman Sachs Group, Inc., and JPMorgan Chase as the top picks ahead of the earnings season due to expectations of investment banking expenses and trading revenues surpassing market expectations. Key financial forecast indicators show that from 2025 to 2027, overall growth trends are robust for North American large banks. In terms of asset size, money center banks are leading in growth, with JPMorgan Chase reaching an average total asset size of $4.43 trillion in 2025, up 8.4% year-on-year, and Bank of America reaching $3.47 trillion, up 5.5%; PNC among the super regional banks had a slight decline of 0.4%, while the rest show positive growth. In terms of deposit structure, non-interest bearing deposits are slowly decreasing, such as Bank of America at 26.0% in 2025E, down from 26.7% in 2024. Interest-bearing deposit costs are gradually decreasing, such as Bank of America at 2.23% in 2025E compared to 2.61% in 2024, relieving pressure on the interest spread. Net interest margin (NIM) remains stable overall, with a median of 2.50% in 2025E, and the super regional banks have higher NIM, with Regions Financial Corporation (RF.US) at 3.60% in 2025E, while trust banks are lower, with New York TrustCo Bank Corp NY (BK.US) at 1.28% in 2025E. Expense income is one of the core drivers of growth, with investment banking expenses showing significant growth rates exceeding consensus: M&A fees are projected to increase by 30% year-on-year in 2025E, compared to the consensus of 11%; ECM fees are expected to grow by 41%, compared to the consensus of 30%; DCM fees are expected to grow by 4%, compared to the consensus of 3%; currency center banks such as JPMorgan Chase and Goldman Sachs Group, Inc. are expecting a growth of over 9% in fee income in 2025E. As for provisions and non-performing assets, provisions are expected to grow moderately in 2025, with JPMorgan Chase expecting provisions of $12.212 billion in 2025E, up 14% year-on-year, and the NCO ratio is controllable, with a median of 0.55% in 2025E, PNC, and New York Mellon among other banks showing NCO ratios below 0.3%. In terms of capital return, the median dividend payout ratio for bank stocks in 2025 is about 30%. Money center banks are expected to have a 29% decline to 27%, with JPMorgan Chase at $5.80 per share and Citigroup at $2.32 per share. Super regional banks have higher levels, with Truist Financial at 51.8%. Stock buyback efforts have significantly increased, with JPMorgan Chase expected to repurchase $38.013 billion in 2025E, compared to $18.837 billion in 2024, and Citigroup Inc. expected to repurchase $13.465 billion in 2025E, far exceeding the $2.5 billion in 2024, underscoring the banks' confidence in their own valuations. The report takes a cautiously optimistic view on the North American large banking sector, believing that money center banks will perform better under the drive of investment banking and trading revenues, super regional banks will maintain asset quality stability, and trust banks, while under pressure from net interest spreads, still have resilient support from fee income.