(Photo Credit: Gideon Benari)
Three big banks mark the beginning of the first quarter earnings season, which is expected to be the best since 2011. Today we will hear from JPMorgan Chase, Wells Fargo and Citigroup, followed by Bank of America (BAC), Goldman Sachs (GS) and Morgan Stanley (MS) early next week.
JPMorgan Chase (JPM): After closing up 20% in 2016 after President Trump’s election victory, Financials have backed off a bit in 2017. JPM has given up some of its post-election momentum, but the stock has only fallen around 2% year-to-date. For the upcoming earnings season, the Estimize community is expecting Q1 EPS of $1.55, four cents above the Street, and revenues of $24.76B, or roughly $200M below the sell-side. The bank posted positive EPS surprises for each quarter of 2016, beating both the Estimize and Wall Street consensus, and even posting YoY growth of 20% in the second half of the year. Revenues have kept the streak up even longer, surpassing expectations in the last 5 quarters. Analysts expect this quarter to build on the fundamental improvements made throughout fiscal 2016. Increased trading and investment banking activity along with improving net interest margins should lead to another better than expected report. On the downside, higher interest rates means a strong U.S. dollar. JPM’s vast exposure to international markets makes it vulnerable to currency fluctuations and the macroeconomic uncertainty plaguing many countries.
Wells Fargo (WFC): The Wells Fargo story has taken a bit of a different turn from it’s peers after reports emerged in the Fall that employees were directed to open new accounts without notifying clients. After coughing up $185M in settlements, losing customers as a result of the scandal, and being told by the Federal Reserve that their “living will” plan failed to meet the latest round of requirements, the bank missed Q4 2016 EPS estimates by 5 cents and saw profit growth fall 7% year-over-year. This was the fourth consecutive quarter of earnings declines. Q1 2017 is expected to post another YoY decline, but only of -1%, as the Estimize community anticipates EPS of $0.98, a penny higher than the Street. That estimate has fallen by 1% since the last quarterly report. Revenues are expected to be flat for the quarter at $22.17B. Despite its recent woes, the bank should continue to see steady improvements in deposits, loans and credit quality.
Citigroup (C): While EPS actuals slightly missed the Estimize consensus in the final quarter of 2016, Citigroup managed to beat the Street by 4 cents. But it was a miss on revenues that lead the stock to plunge by nearly 3% in the three trading sessions following the report. For the first quarter of 2017 the Estimize community is looking for EPS of $1.27, three cents higher than the sell side. Revenues are anticipated to come in at $17.9B, about $100M above the Street’s expectation. Trading revenue will again be an area of focus in the upcoming report. During the fourth quarter revenue from trading operations rose to just over $3.7B, 31% growth on a YoY basis due to the jump in equity and debt trading after the US presidential election. Weak M&A and IPO markets remain threat to Citi, as well as currency headwinds.
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