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First Round of Bank Earnings is Positive, What's on Deck?

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JP Morgan Chase (JPM - Free Report) , Citigroup (C - Free Report) , and Wells Fargo (WFC - Free Report) all reported quarterly results before the opening bell on Friday and the results were definitely encouraging.

We reported yesterday on the current interest rate environment and the potential for bank results to be bolstered by gradually rising rates and the steepening of the yield curve. While many factors besides rates were at play in bank earnings, Friday’s reports can certainly be seen as “green shoots” for the industry which has lagged the broader markets so far in 2018.

JPM turned in top and bottom line beats, earning $2.34/share on revenues of $27.3B versus estimates of $2.24/share and $27.2B, respectively. While still raising the possibility that geopolitical events could derail global economic growth in the future, CEO Jamie Dimon commented, “We still have a strong economy in spite of these increasing overseas geopolitical issues bursting all over the place,”

Citigroup also beat on both revenues and earnings, bringing in $18.39B, just a slight beat of the estimates of $18.37B, and earning $1.74/share, topping the Zacks Consensus Estimate of $1.66/share. Citigroup credited an increase in fixed-income trading profits, reduced expenses and a lower effective tax rate – 24% vs. 31% - for the improvement.

Finally, results were mixed at WFC. Earnings were a slight disappointment, coming in at $1.13/share, 4 cents lower than the $1.17 that was expected, but the company beat estimates for revenues at $21.94B, versus the consensus of $21.90B. These results were still seen as positive as Wells Fargo continues to clean up the customer fraud scandal and $0.03 of the earnings miss was the result of a one-time charge.

Citigroup and Wells Fargo were both trading about 1.5% higher at midday on Friday, while JPM is basically unchanged.

Reasons for Optimism

In a week of turmoil in U.S. and global equity markets, these results were reassuring to investors that it’s still business as usual at the biggest banks. Importantly, none of them reported any significant losses or problems in any business units and the increase in bond trading profits at Citigroup is especially encouraging.

Though the market action of the past two weeks is not reflected in any of these results, but the big trading desks generally perform well during times of market volatility. Even if the equity and debt markets remain choppy, trading profits will likely serve as a hedge against other potentially underperforming units.

In the On Deck Circle

Next week earnings season gets into full-swing and we’ll see Bank of America (BAC - Free Report) on Monday, Goldman Sachs (GS - Free Report) and Morgan Stanley (MS - Free Report) on Tuesday, and US Bancorp (USB - Free Report) and Bank of New York Mellon (BK - Free Report) on Thursday as well as a slew of smaller banks and financial stocks throughout the week.

More strong results are likely to further reassure investors that the sky is not falling and that the nation’s largest financial institutions – and by proxy the U.S. economy – are still on firm footing.

Despite the recent big swings in the market, it’s still earnings that ultimately drive equity prices. Earnings season is off to a strong start and a continuation of that trend is likely to calm things down considerably.

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