3Q26 Preview: Cautious optimism; focus on capital markets slowdown, strong NII, and moderating capital returns

As we head into 3Q26 earnings, we expect investors to focus on three key themes: 1) the outlook for capital markets after a strong 2Q26, with 3Q26 equities trading expected to normalize QoQ, pockets of weakness in FICC given the move in rates and a much slower investment banking quarter, although still up YoY; 2) the outlook for NII amidst strong loan growth, coupled with fixed rate asset repricing, partially offset by higher deposit costs; 3) the prospects for capital deployment to moderate from here, driven by lower levels of excess capital, the AOCI impact from higher rates, and pressure from three consecutive years of G-SIB buffer increases. Valuation for the group appears fair, after the 5% decrease in share prices in 3Q26, driven by multiple derating. We expect that large cap banks will continue to generate attractive ROTCEs in the near term given the strong revenue environment and benign credit outlook, although a multiple re-rating is dependent on greater clarity around the mac