5 Major Bank Stocks Poised To Beat Earnings Estimates In Q4
Zacks Investment Research | Jan 10, 2019 08:46PM ET
The Q4 earnings season is just around the corner and investors are eagerly waiting for the results of the mega banks, which remained in the spotlight throughout the quarter for a number of reasons.
Heightening concerns about rising interest rates, trade tensions and political uncertainty kept the broader markets under pressure, but the continued economic improvement has provided some respite.
Flattening, and sometimes inversion of the yield curve during the fourth quarter, is expected to have a negative impact on banks’ financials. Banks typically benefit from steepening of yield curve.
Dismal mortgage banking performance was also a dampener in the quarter amid rising interest rates, which made homes less affordable. Originations and refinancing activities slowed down during the quarter.
On the trading front, performance of capital markets might be a matter of concern. Though escalating trade-war concerns, Brexit issues, anxiety on rising rates and some other geo-political tensions during the quarter created high volatility, seasonality on a sequential basis might be an offsetting factor.
Investment banking is also anticipated to display a disappointing performance in the to-be-reported quarter due to seasonality and a considerable reduction in equity underwriting volumes globally on trade-war fears.
Moreover, debt origination fees may have remained low due to rising rates curbing corporates’ involvement in these activities. Furthermore, robust pipeline of M&As in the previous quarters lost momentum in the fourth quarter on volatile stock markets and higher borrowing costs.
Further, credit quality is likely to remain strong, backed by an improving economy and conservative underwriting standards.
Expense reduction, which has helped banks remain profitable, is not expected to be a big support, as these companies have already slashed the majority of unnecessary expenses. While the absence of considerable legal expenses over the last few quarters is encouraging, increased investments in technology to improve digital offerings might escalate costs moderately.
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