Major Banks Set to Report Earnings Amid Rising Yield Environment, UBS Says

02:15 PM EDT, 10/05/2026 (MT Newswires) -- Third-quarter earnings for major banks will unfold against a backdrop of rising Treasury yields, with earnings estimates of Goldman Sachs (GS) and Morgan Stanley (MS) sitting well below Wall Street's views, UBS Securities said in a note Monday. Earlier this month, the 10-year Treasury yield hit the highest level since April 2002, hitting as high as 5.24%. The 10-year yield is seen as a proxy for rates on mortgages and other loans. "A key theme we expect to hear discussed on earnings calls this quarter is, of course, the current rate environment, in which we have seen long-term treasury yields reach their highest levels in years," UBS analyst Erika Najarian said. Banks have underperformed the S&P 500 by 9.3% since the 10-year yield hit about 5%, according to the UBS note. History suggests that a climb in the 10-year rate above 5% tends to have a negative impact on market multiples. "We think investors will be sensitive to any management commentary on how longer-term rates impact business momentum," Najarian said. "In the medium term, we think any signal that long-term rates have reached their peak will be supportive of bank shares." A higher rate backdrop puts deposit costs back in focus, Najarian wrote. Last month, the Federal Reserve raised interest rates for the first time in just over three years to combat sticky inflation. The central bank's so-called "dot plot" signaled that a further rate increase could happen later this year. The US big bank earnings season kicks off next week. UBS lowered its third-quarter earnings-per-share estimates for Goldman, Morgan Stanley, Bank of America (BAC), Wells Fargo (WFC) and JPMorgan Chase (JPM). It raised the outlook for Citigroup (C). Of the six banks, Goldman, Morgan Stanley, JPMorgan and Citigroup are likely to miss estimates, with Goldman and Morgan Stanley expected to see the biggest shortfall, according to the note. Bank of America and Wells Fargo are seen topping Wall Street's EPS views. UBS slashed Goldman's third-quarter EPS forecast by 25% to $11.46, well below the Street's $13.91 projection. The company is expected to announce a chief executive transition in the next nine to 12 months, UBS said, following a recent report by The Wall Street Journal that Goldman's board was considering naming Chief Operating Officer John Waldron to replace David Solomon as CEO. The brokerage lowered Morgan Stanley's EPS estimate by 13% to $2.60, below the Street's $3.04 view, saying there could be upside on expenses. Expenses are also expected to weigh on JPMorgan's third-quarter EPS, according to the note. UBS cut the outlook to $5.80 from $5.86, versus the consensus of $5.89. "Given more diverse revenues away from the markets vs. (Morgan Stanley) and (Goldman Sachs) and a general view of defensiveness, we think (JPMorgan's) shares can continue its outperformance, especially if revenue upgrades outpace higher expense revisions," Najarian said. For Bank of America, UBS projects third-quarter EPS of $1.13, down from $1.20 previously anticipated, but topping the $1.10 consensus estimate. Meanwhile, UBS trimmed Wells Fargo's estimate $1.85 from $1.90, outpacing the $1.83 consensus. The investment firm upgraded Citigroup's third-quarter EPS estimate to $2.59 from $2.57, compared with the $2.64 consensus estimate. Last week, Oppenheimer said earnings of certain major US banks are expected to be pressured amid broader concerns around capital markets revenue. Price: 897.95, Change: -4.61, Percent Change: -0.51