Earnings Watch: Eye On The Financials
Estimize | Oct 12, 2015 11:28AM ET
This week we’ll get an important read on the Financials sector as 5 of the country’s biggest banks report Q3 results.
- JPMorgan Chase & Co. (N:JPM)
JPMorgan Chase reports its FQ3 ’15 results before the opening bell on Tuesday. The Estimize EPS consensus is set at $1.45, 6 cents higher than Wall Street’s consensus. Revenue expectations of $24.2B also surpass the Street’s estimate of $23.9B. These numbers would put JPMorgan’s year-on-year (YoY) earnings and revenue growth at 4.3% and 1.1%, respectively. The company’s stock is down 1% year-to-date (YTD).
JPM was able to crush Q2 EPS expectations last quarter, while still missing on the top-line. This quarter the bank is expected to benefit from an uptick in commercial loan growth as well as an increase in capital spending. While equity trading revenues were high due to the volatile markets in Q3, it may not be enough to offset fixed income, currency and commodities (FICC) trading. JPMorgan also has to deal with a $136M fine issued on July 8th due to its deceptive debt collection tactics; selling credit card debt for accounts that were inaccurate, discharged in bankruptcy, or just not collectible. That impact will be reflected in Tuesday’s report.
- Wells Fargo & Company (N:WFC)
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Wells Fargo reports on Wednesday morning when they release their FQ3 ’15 result. Estimize predicts an EPS figure of $1.06 and a revenue number of $21.73B. Wall Street analysts however, are looking for an EPS figure of $1.04 and forecast revenues of $21.58B.
Weak demand for mortgages has restricted Wells Fargo’s revenue growth for a considerable amount of time. While mortgage applications slowly made a comeback in the first half of the year coming off a very low base, originations are expected to be low in Q3. The latest forecast from the Mortgage Bankers Association is calling for an 8% QoQ decline in home-loan originations, bad news for the country’s largest mortgage lender. However, an increase in commercial real estate lending could help boost the bottom-line.
- Bank of America Corporation (N:BAC)
Bank of America also reports results on Wednesday morning before the bell. Estimize is looking for EPS of $0.37, 3 cents higher than the Wall Street estimate, and much higher than the year-ago result of -$0.01. Revenues are expected to come in at $21.5B, ahead of the Street’s prediction of $21B.
Low interest rates continue to haunt banks, with no sign of an increase this year, meaning it could be a while before BAC will benefit from an uptick in interest revenue. This is particularly alarming for Bank of America whose balance sheet is highly leveraged to rising interest rates and a steepening of the yield curve caused by its large mortgage book. Specifically with segment revenue performance, the Consumer Banking unit generates the highest revenue for the bank, almost 36%.The report from Bank of America will be one to watch carefully as investors will get a good understanding of not just the company’s performance, but also management’s outlook for interest rate moves and the overall strength of the housing sector.
- Goldman Sachs Group (N:GS)
Goldman Sachs is scheduled to report FQ3’ 15 earnings before the market opens this Thursday. The Estimize EPS estimate is set at $4.21, a whopping 85 cents higher than the Wall Street consensus of $3.36. In terms of revenue forecasts, the Estimize community forecast $8.25B compared to Wall Street which predict $7.65B.
Similar to its competitors, Goldman Sachs is expected to be negatively affected by the lack of fixed income trading over the past three months. Despite having a relatively small bond-trading desk when compared to its peers, the fall in bond trading volume will still likely have a negative effect on Goldman Sachs’ revenues and earnings. One bright spot is M&A activity which is sure to benefit investment banks such as Goldman. Completed M&A deals totaled $867B vs. Q2’s $820B (6% improvement QoQ, 40% YoY), making Q3 2015 one of the best quarters since the economic downturn in 2008.
- Citigroup Inc. (N:C)
Citigroup will also report Thursday morning when they release to the market their FQ3 ’15 results. For the upcoming quarter, the Estimize community is predicting an EPS figure of $1.41 and a revenue target of $19.38B. Wall Street expects EPS coming in at $1.33 and a revenue figure of $18.94B.
Expect Citigroup to mention the same headwinds as the other big banks. Despite recent upgrades from Jefferies and Credit Suisse (VX:CSGN), the stock is still down 6% for the year. While volatile equity markets will boost revenues, fixed income trading in particular will evaporate any of those gains. On a positive note, Citigroup is in the middle of a cost cutting campaign in an attempt to improve efficiency throughout the firm. It’s efficiency ratios are expected to improve this quarter which should help expenses decline relative to revenues and provide upside to earnings. Citigroup is also expected to see gains in consumer revenue.
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