Big Banks - C, WFC, PNC, USB - Set to Release Q2 Earnings
Zacks Equity Research
Updated
The second-quarter earnings season is knocking at the door with Wall Street giant JPMorgan Chase & Co. JPM already setting the ball rolling and coming out with better-than-expected results. Next up are Wells Fargo & Company WFC, The PNC Financial Services Group, Inc. PNC, Citigroup Inc. C and U.S. Bancorp USB, all of which will report their financial numbers on Jul 15.
U.S. banks have been braving hurdles since the beginning of this year. Even the last week of the quarter was marked by heightened volatility and uncertainty resulting from Britain’s exit from the European Union.
As a matter of fact, a weak financial market, along with continued pressure on margins might stifle the banking sector’s revenues yet again. The first two months of the quarter saw an increase in trading activity, which might have had a positive impact on trading revenues. While client activity was weaker in equities, it was higher for fixed income. However, June data is not expected to be good for trading and investment banking because of Brexit and other macro concerns. This may well offset the early momentum.
Further, the decline in M&A activities and a weakening IPO market in the wake of global economic concerns persisted. While energy loans are still a concern, the provision requirement should not be as high as it was in the first quarter, thanks to the recovery in oil prices.
While investor confidence got a significant boost with most banks getting the 2016 capital plan approval, concerns over Brexit continued to weigh on these stocks.
Notably, per our Earnings Preview report, overall earnings for the Finance sector in second-quarter 2016 are expected to be down 6.6%.
Let’s take a look at four major banks that are scheduled to release their results tomorrow.
Wells Fargo & Company is scheduled to report second-quarter 2016 results before the opening bell. It is unlikely to beat the Zacks Consensus Estimate in the to-be-reported quarter as the global economy, persistently low interest rate environment and volatile oil prices plagued the company. The Brexit fallout added to its woes.
Nonetheless, the company is expected to benefit from the addition of assets of GE Capital. Also, the mortgage business seems to be looking up as the low rate environment could have pushed people to refinance home loans. (Read more: Wells Fargo Q2 Earnings: Disappointment in Store?)
Notably, Wells Fargo surpassed the Zacks Consensus Estimates in three of the trailing four quarters, as shown in the chart below:
WELLS FARGO-NEW Price and EPS Surprise
WELLS FARGO-NEW Price and EPS Surprise | WELLS FARGO-NEW Quote
The PNC Financial Services Group, Inc. is also unlikely to beat the Zacks Consensus Estimate in the second quarter. Nevertheless, modest improvement in net interest income and a 10–12% expected rise in fee income are anticipated to drive top-line growth.
However, continued pressure on net interest margin, seasonally higher expenses and expectations of continued stress in energy lending are potential headwinds. The bank is scheduled to report results before the opening bell. (Read more: PNC Financial: Stock to Turnaround Post Q2 Earnings?)
PNC Financial has posted a positive average beat of 4.06% for the trailing four quarters, having surpassed the Zacks Consensus Estimate in three of them, as demonstrated in the chart below:
Citigroup Inc. is expected to record a 28% year-over-year decline in net income. Consumer business revenues are expected to be down slightly on a sequential basis due to the absence of a one-time gain experienced in retail services. Moreover, the company anticipates continued pressure on net interest margin, given that the Fed has not taken any step to raise interest rates.
However, trading and investment banking revenues for the quarter are expected to increase slightly on a sequential basis, while continued cost management should ease the expense burden to some extent. (Read more: Will Citi Stock Remain Under Stress Post Q2 Earnings?)
Notably, Citigroup recorded positive earnings surprises in all of the trailing four quarters, with an average positive surprise of 4.40%, as shown in the chart below:
CITIGROUP INC Price and EPS Surprise
CITIGROUP INC Price and EPS Surprise | CITIGROUP INC Quote
U.S. Bancorp is slated to announce results before the opening bell. The company has a Zacks Rank #4 (Sell) with an Earnings ESP of -1.24%. We generally do not consider Sell-rated stocks going into an earnings announcement, especially when it is witnessing a negative earnings momentum. Non-interest expenses are expected to be higher in the second quarter driven by expected seasonality and elevated expenses associated with brand positioning in the first quarter. Continued stress in energy lending could be an undermining factor.
However, net interest margin is expected to remain stable, while net interest income increases slightly. Further, loan growth is expected to be around 1.5%. Low rates are expected to encourage higher real estate activity and lending as well. Notably, mortgage fees are anticipated to increase 10% to 20% based on seasonal higher application volume in second-quarter 2016. (Read more: Will Macro Issues Hurt U.S. Bancorp Q2 Earnings?)
With respect to the surprise trend, U.S. Bancorp posted positive surprises in two of the last four quarters, with an average beat of 0.65%, as shown in the chart below:
US BANCORP Price and EPS Surprise
US BANCORP Price and EPS Surprise | US BANCORP Quote
Given tough industry challenges faced by major banks, investors should focus on the companies’ fundamentals regardless of an earnings beat or miss.
Check later on our full write-up on earnings releases of these stocks.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
