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Banking Earnings Decent in Q2: ETFs in Focus

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The Q2 earnings season has been pretty upbeat so far for the financial sector, which accounts for around one-fifth of the S&P 500 index. Solid trading and investment banking revenues have been the key for bank earnings. Most of the banks increased provisions to fight the coronavirus-led crisis. Let’s take a look at major banking earnings releases in detail:

Big Bank Earnings in Focus

JPMorgan (JPM) reported second-quarter 2020 earnings of $1.38 per share. The bottom line surpassed the Zacks Consensus Estimate of $1.34.The results included provision builds owing to deterioration in the macroeconomic backdrop, bridge book markups and gains related to funding spread tightening on derivatives.

Excluding the above-mentioned items, earnings per share came in at $3.27. Net revenues as reported were $33 billion, up 15% from the year-ago quarter. Also, the top line beat the Zacks Consensus Estimate of $29.5 billion.

Wells Fargo (WFC) reported loss per share of 66 cents, which was attributed to a reserve build of $8.4 billion for the coronavirus outbreak-related crisis. The Zacks Consensus Estimate was pegged at a loss of 7 cents. The quarter’s total revenues came in at $17.8 billion, lagging the Zacks Consensus Estimate of $18.3 billion. Also, revenues were lower than the year-ago quarter’s $21.6 billion.

Citigroup (C) delivered an earnings surprise of 6.4% in second-quarter 2020 on robust revenues. Earnings per share of 50 cents handily outpaced the Zacks Consensus Estimate of 47 cents but declined significantly from the prior-year quarter. Revenues were up 5% year over year to $19.8 billion in the second quarter. The reported figure also beat the Zacks Consensus Estimate of $19.2 billion.

Bank of America’s (BAC) second-quarter 2020 earnings of 37 cents per share outpaced the Zacks Consensus Estimate of 28 cents. Earnings included the impact of a reserve build of $4 billion, mainly to combat persistent economic slowdown. Net revenues amounted to $22.3 billion, which beat the Zacks Consensus Estimate of $21.8 billion. However, the figure was down 3% on a year-over-year basis.

Goldman Sachs (GS) reported second-quarter 2020 earnings per share of $6.26, significantly surpassing the Zacks Consensus Estimate of $3.97. Also, the bottom line compares favorably with earnings of $5.81 per share recorded in the year-earlier quarter. Goldman’s net revenues were up 41% year over year to $13.3 billion in the reported quarter. Revenues also beat the Zacks Consensus Estimate of $10.1 billion.

Morgan Stanley’s (MS) second-quarter 2020 adjusted earnings of $2.04 per share hugely surpassed the Zacks Consensus Estimate of $1.17. Also, the figure improved 66% from the year-ago quarter. As anticipated, Morgan Stanley’s trading business delivered a stellar performance. Overall trading revenues jumped 68% from the year-ago period.

Further, the investment banking business was impressive. Equity underwriting fees jumped 62%, while fixed income underwriting revenues surged 68% from the prior-year quarter. Net revenues were $13.41 billion, surging 31% from the prior-year quarter. Moreover, the top line beat the Zacks Consensus Estimate of $10.78 billion.

Market Impact

Against this backdrop, investors might be wondering how financial ETFs like iShares U.S. Financial Services ETF (IYG - Free Report) , iShares US Financials ETF (IYF - Free Report) , Invesco KBW Bank ETF (KBWB - Free Report) , Financial Select Sector SPDR (XLF - Free Report) and Vanguard Financials ETF (VFH - Free Report) have responded to the earnings releases. These funds have considerable exposure to the aforementioned stocks (see all Financial ETFs here).

Goldman and Morgan Stanley are not that prominent in the afore-mentioned ETFs, but are rather heavy on iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI - Free Report) . Most of these ETFs put up a modest performance in the last five days — which marked the peak of banking earnings releases, apart from KBWB.

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