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Making Sense of Bank Earnings Amid Market and Economic Uncertainty
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The market’s favorable reaction to Citigroup’s (C - Free Report) quarterly earnings report is largely a function of low expectations, not operating outperformance relative to what we saw from JPMorgan (JPM - Free Report) . The market appears relieved that Citi’s Russia exposure, while still much bigger than JPMorgan and its other Wall Street peers, is manageable and relatively smaller compared to initial worst-case scenarios.
Citi handily beat top- and bottom-line estimates, unlike JPMorgan which beat revenue estimates but missed on the bottom line.
Aside from Citi’s Russia exposure, the rest of its results were in-line with the trends we saw in the JPMorgan report. Investment banking revenues were down big, though trading revenues dropped less than what the market had been expecting earlier. The lower-than-feared drop in trading revenues, particularly for fixed income instruments, has been true at Citi, JPMorgan, and Goldman Sachs (GS - Free Report) .
Loan portfolios increased at both JPMorgan and Citi, with credit card loans up +7% at Citi and +15% at JPMorgan. The improving trend in loan demand offers favorable read-throughs for the regional banks that are on deck to report results next week.
First quarter earnings at JPMorgan and Citi were down -42.1% and -45.4%, respectively from the same period last year. In addition to the aforementioned weakness in the capital market business, this year-over-year earnings decline is primarily a function of loan loss reserves that are hit to profits this quarter but were a benefit in the year-earlier period.
For the Zacks Major Banks industry, which includes Citi and JPMorgan and accounts for roughly 40% of total Finance sector earnings, total Q1 earnings are on track to be down -32.9% from the same period last year on +0.6% higher revenues.
The weak growth outlook for this industry is a major reason why Q1 earnings for the Zacks Finance sector are expected to be down -16.1% from the same period last year on +2.7% higher revenues.
You can see this in the table below that shows the sector’s Q1 earnings and revenue expectations at the ‘medium’ industry level in the context of what the space reported in the preceding period and what is expected in the following quarter.
Image Source: Zacks Investment Research
With respect to the sector’s Q1 earnings season scorecard, we now have results from 24.1% of the sector’s market capitalization in the S&P 500 index. Total earnings for these Finance sector companies are down -33.2% from the same period last year on -3.9% lower revenues, with 81.8% beating EPS estimates and 63.6% beating revenue estimates.
This is a weaker showing than we have seen from this group of banks in other recent periods, as you can see in the comparison charts below that show how Q1 EPS and revenue beats percentages stack up to other recent periods.
Image Source: Zacks Investment Research
Next week will bring results from all the regional banks in addition to Bank of America. Trends in loan portfolios and the outlook for costs will likely determine how the market responds to those results.
The 2022 Q1 Earnings Season Scorecard
Including the aforementioned bank results, we now have Q1 results from 35 S&P 500 members. Total Q1 earnings for these companies are down -17.6% from the same period last year on +8.8% higher revenues, with 80% beating EPS and revenue estimates.
We get into the heart of the Q1 earnings season next week, with more than 150 companies reporting results, including 63 S&P 500 members. This week’s line-up of reports provides a representative cross-section of all sectors, ranging from Johnson & Johnson and Proctor & Gamble to IBM, Netflix, Haliburton, and all the major regional banks and brokers.
The comparison charts below put the 2022 Q1 earnings and revenue growth rates for these 35 index members in the context of what we had seen from the same group of companies in other recent periods.
Image Source: Zacks Investment Research
The comparison charts below show the Q1 EPS and revenue beats percentages for these 35 index members in a historical context.
Image Source: Zacks Investment Research
Looking at Q1 as a whole, with actuals for these 35 index members and estimates for the still-to-come companies, total earnings are expected to be up +4.3% on +10% higher revenues.
Excluding the -16.1% decline in Finance sector earnings, the growth rate for the index improves to +10.7%. On the other hand, the Energy sector has a very robust earnings profile at present, with the sector expected to bring in +209% more earnings than the year-earlier period on +38.2% higher revenues. Excluding the hefty Energy sector contribution, earnings for the remainder of the index would be down -1% on +8% higher revenues.
Image Source: Zacks Investment Research
The chart below shows the comparable picture on an annual basis.
Image Source: Zacks Investment Research
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>Mixed Start to the Q1 Earnings Season
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Making Sense of Bank Earnings Amid Market and Economic Uncertainty
The market’s favorable reaction to Citigroup’s (C - Free Report) quarterly earnings report is largely a function of low expectations, not operating outperformance relative to what we saw from JPMorgan (JPM - Free Report) . The market appears relieved that Citi’s Russia exposure, while still much bigger than JPMorgan and its other Wall Street peers, is manageable and relatively smaller compared to initial worst-case scenarios.
Citi handily beat top- and bottom-line estimates, unlike JPMorgan which beat revenue estimates but missed on the bottom line.
Aside from Citi’s Russia exposure, the rest of its results were in-line with the trends we saw in the JPMorgan report. Investment banking revenues were down big, though trading revenues dropped less than what the market had been expecting earlier. The lower-than-feared drop in trading revenues, particularly for fixed income instruments, has been true at Citi, JPMorgan, and Goldman Sachs (GS - Free Report) .
Loan portfolios increased at both JPMorgan and Citi, with credit card loans up +7% at Citi and +15% at JPMorgan. The improving trend in loan demand offers favorable read-throughs for the regional banks that are on deck to report results next week.
First quarter earnings at JPMorgan and Citi were down -42.1% and -45.4%, respectively from the same period last year. In addition to the aforementioned weakness in the capital market business, this year-over-year earnings decline is primarily a function of loan loss reserves that are hit to profits this quarter but were a benefit in the year-earlier period.
For the Zacks Major Banks industry, which includes Citi and JPMorgan and accounts for roughly 40% of total Finance sector earnings, total Q1 earnings are on track to be down -32.9% from the same period last year on +0.6% higher revenues.
The weak growth outlook for this industry is a major reason why Q1 earnings for the Zacks Finance sector are expected to be down -16.1% from the same period last year on +2.7% higher revenues.
You can see this in the table below that shows the sector’s Q1 earnings and revenue expectations at the ‘medium’ industry level in the context of what the space reported in the preceding period and what is expected in the following quarter.
Image Source: Zacks Investment Research
With respect to the sector’s Q1 earnings season scorecard, we now have results from 24.1% of the sector’s market capitalization in the S&P 500 index. Total earnings for these Finance sector companies are down -33.2% from the same period last year on -3.9% lower revenues, with 81.8% beating EPS estimates and 63.6% beating revenue estimates.
This is a weaker showing than we have seen from this group of banks in other recent periods, as you can see in the comparison charts below that show how Q1 EPS and revenue beats percentages stack up to other recent periods.
Image Source: Zacks Investment Research
Next week will bring results from all the regional banks in addition to Bank of America. Trends in loan portfolios and the outlook for costs will likely determine how the market responds to those results.
The 2022 Q1 Earnings Season Scorecard
Including the aforementioned bank results, we now have Q1 results from 35 S&P 500 members. Total Q1 earnings for these companies are down -17.6% from the same period last year on +8.8% higher revenues, with 80% beating EPS and revenue estimates.
We get into the heart of the Q1 earnings season next week, with more than 150 companies reporting results, including 63 S&P 500 members. This week’s line-up of reports provides a representative cross-section of all sectors, ranging from Johnson & Johnson and Proctor & Gamble to IBM, Netflix, Haliburton, and all the major regional banks and brokers.
The comparison charts below put the 2022 Q1 earnings and revenue growth rates for these 35 index members in the context of what we had seen from the same group of companies in other recent periods.
Image Source: Zacks Investment Research
The comparison charts below show the Q1 EPS and revenue beats percentages for these 35 index members in a historical context.
Image Source: Zacks Investment Research
Looking at Q1 as a whole, with actuals for these 35 index members and estimates for the still-to-come companies, total earnings are expected to be up +4.3% on +10% higher revenues.
Excluding the -16.1% decline in Finance sector earnings, the growth rate for the index improves to +10.7%. On the other hand, the Energy sector has a very robust earnings profile at present, with the sector expected to bring in +209% more earnings than the year-earlier period on +38.2% higher revenues. Excluding the hefty Energy sector contribution, earnings for the remainder of the index would be down -1% on +8% higher revenues.
Image Source: Zacks Investment Research
The chart below shows the comparable picture on an annual basis.
Image Source: Zacks Investment Research
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>Mixed Start to the Q1 Earnings Season