Zacks

Bank Earnings Are Good, But Fail to Impress

Brian Hamilton
Updated

JPMorgan (JPM) and Citigroup (C) handily beat earnings and revenue estimates while Wells Fargo (WFC) beat earnings expectations but modestly missed revenue estimates. The market wasn’t impressed these results, with all three bank stocks ending the otherwise positive Friday session in negative territory. A big reason for the market’s lukewarm reaction to the seemingly positive bank earnings is the soft guidance for the current period, particularly from JPMorgan. This will likely show up in lowered Q3 estimates in the coming days.

Bank stocks struggled in April and May as treasury yields kept going down, but they came back strong in June on the back of a trend reversal in yields and better than expected ‘Stress Test’ results that opened up outsized capital returns opportunities. Most of the headwinds facing banks in Q2 weren’t new; we knew that the capital markets business was soft due to muted volatility and that lower treasury yields would be weighing on margins even as growth in loan portfolios had started decelerating. Estimates had started coming down in the run up to these reports, but not by that much.

Results from these money-center banks and PNC Financial (PNC), which also reported June-quarter results on Friday, offer useful but not very favorable read-throughs for the regional banks and investment banks coming out with results this week.

Finance Sector Scorecard

It is still fairly early, with results from only 4 Finance sector companies in the S&P 500 (out of 95 total) out already. But these 4 companies are the some of the largest in the entire index and account for 22% of the sector’s total market capitalization in the index. Total earnings for these 4 Finance sector companies are up +6.2% from the same period last year on +2.5% higher revenues, with all 4 beating EPS estimates and 3 beating top-line estimates.

The chart below compares the growth pace (earnings and revenue) and proportion of positive surprises for these 4 banks with what we saw from this same group of companies in other recent periods.

What this shows is that the Q2 earnings and revenue growth pace is below what we saw from the same four banks in the preceding quarter, but is otherwise better than other recent historical periods.

Total Q1 earnings for the sector as a whole, combining the reported actual results with the still-to-come estimates, are expected to be up +9.3% from the same period last year on +1.7% higher revenues. The chart below shows the sector’s Q2 earnings growth expectations contrasted with estimates for the following four quarters and actual results for the preceding two periods.

and

Recommended Stories