America's biggest lenders are getting ready to show investors how they are different from Silicon Valley Bank and other troubled banks that sent the sector into crisis last month.

Four giant banks are set to report first-quarter earnings on Friday: JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC) and PNC (PNC). Next week, Bank of America (BAC) and Goldman Sachs (GS) will report on Tuesday followed by Morgan Stanley (MS) and U.S. Bancorp (USB) on Wednesday.

These firms will kick off one of the most highly-anticipated earnings seasons in years, coming roughly one month after federal regulators seized regional lenders Silicon Valley Bank and Signature Bank following deposit runs at both institutions.

Some of the panic of a month ago has subsided. But banks are not clear of all problems.

Stock prices of some lenders are still depressed, reflecting investor concerns that banks will be challenged by deposit outflows, slimming margins, slowing loan volumes, and tighter regulations.

All of these issues will be under intense scrutiny on Friday and the weeks ahead as banks big and small scramble to show how they are better positioned than rivals to weather the type of chaos that roiled the industry in March.

Analysts expect JPMorgan, Citigroup, and Wells Fargo to show increases in revenue and profit for the first quarter, compared with the year-ago period, in a demonstration of their resilience. Net income is expected to drop for JPMorgan and Wells Fargo when compared to the prior quarter, however.

A 'knife fight' for deposits

The biggest concern across the sector is the effect rising interest rates are having on everything from deposits to assets.

Many bonds held by banks are underwater, creating the potential for huge losses if banks are forced to sell them.

And even before the chaos triggered by Silicon Valley Bank's March 10 failure, banks including JPMorgan and Wells Fargo had been losing deposits as customers sought out higher rates being offered by money market funds.

"It had already been a fiercely competitive environment for deposit gathering, and the recent bank failures may turn the deposit knife fight into a metaphorical gun fight," Wedbush Securities analysts David Chiaverini and Brian Violino said in a research note.

That trickle of deposit outflows turned into a flood for some institutions during the second half of the month. Banks lost a total of nearly $500 billion in deposits through March 29, according to Federal Reserve data.

Small banks lost more than big banks did but the outflow happened across the industry. JPMorgan and Wells Fargo are both expected to report small deposit declines, while Citigroup is expected to show a small increase.

One positive for banks is that higher interest rates do allow banks to charge more for loans, and that may help boost their income. JPMorgan said in January that it expected to boost net interest income by 11% this year, to $74 billion.

But the concern is that if banks such as JPMorgan also have to pay more to attract or keep depositors, a key profitability measure known as net interest margin will start to shrink. Some analysts are expecting banks to warn that such a tightening is coming, even if it didn’t happen in the first quarter.

"April earnings will be about the outlook, not the results," Betsy Graseck, an analyst at Morgan Stanley, said in a recent note in which she revised down predictions for bank profitability over the next two years due to rising deposit costs.

Lending in focus

Another area of interest for investors will be whether banks are pulling back on lending or making fewer new loans, which would affect the larger economy by reducing the flow of credit to businesses and consumers.

Bank lending did fall by nearly $105 billion across the industry during the two weeks ending March 29, according to the Fed, due mostly to a pullback by smaller institutions. The drop was the most in Fed data back to 1973.

Total loans for JPMorgan and Wells Fargo aren't expected to noticeably change, according to analyst estimates. JPMorgan is expected to show a 0.7% decline as compared with the fourth quarter of 2022 while Wells Fargo is expected to show a 0.03% increase.

Bank CEOs will also likely have some things to say about the possibility of tighter regulation of the industry, a development that could weigh on future profitability. President Biden has asked regulators to strengthen rules governing the oversight of regional banks that were loosened at the end of last decade.

JPMorgan CEO Jamie Dimon urged caution in his annual letter to shareholders released earlier this month, saying that it was unlikely that tighter regulations would have stopped the sudden deposit outflow that sank Silicon Valley Bank. Depositors pulled $42 billion in the bank’s final full day of business.

"It is extremely important that we avoid knee-jerk, whack-a-mole or politically motivated responses that often result in achieving the opposite of what people intended," he said.

FDIC Vice Chairman Travis Hill said Wednesday that attempts to blame what happened on a law passed during the Trump administration are misguided. A bipartisan bill known as "S. 2155" passed in 2018 re-defined which banks were deemed "systemically important," undoing some of the strictest requirements imposed by Congress following the 2008 financial crisis.

“We have people searching under the couch cushions… hoping to find something somewhere tying the SVB failure to that law and its implementing rules," Hill said. "I think it is quite obvious that S. 2155 had nothing to do with it."

Billionaire Warren Buffett said Wednesday in an interview with CNBC that the problems plaguing some banks are simply the result of mismanaging assets and liabilities. But he warned that banks can lose the confidence of the public in seconds and that more banks could in fact go down.

"We're not over bank failures," he said.

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