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Bank Stock Roundup: Q4 Earnings Season Unfolds, JPM, WFC & Citi Top Estimates

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Though most banks that reported fourth-quarter 2020 results this week managed to beat estimates on higher fee income, unexpected reserve releases and manageable expenses, investors’ concerns are still high on the looming economic uncertainty. Moreover, the bleak outlook from major banks for the first half and normalization of business activities at a slower pace have only added fuel to the fire, dragging down the stocks in the last four trading sessions.

Notably, low interest rates and muted loan demand (except for commercial real estate and consumer) resulted in a decline in net interest income and contraction of banks’ net interest margins. Though high spending on technology and other market development initiatives was seen, overall expenses were manageable.

On the fee income front, major banks managed to get some relief on higher trading revenues, resulting from solid client activities and a continued upsurge in market volatility. Further, a decent investment banking performance, aided by a solid equity underwriting business, was on the upside. Also, low mortgage rates supported banks’ mortgage banking business as refinancing activities witnessed a surge. Additionally, advisory business was on the upside, driven by rise in deal making activities.

However, consumer banking operations played spoilsport due to the low consumer sentiment on a high unemployment level during the fourth quarter and uncertainty surrounding the new stimulus package.

Nevertheless, a substantial reserve release by banks, leading to lower credit costs, supported the results. Overall, banks’ balance sheet and liquidity positions remained solid amid the economic slowdown due to the coronavirus crisis.



(Read: Bank Stock Roundup for the Week Ending Jan 8, 2021)

Important Earnings of the Week

1. Citigroup (C - Free Report) delivered an earnings surprise of 53.3% in fourth-quarter 2020 on reserve releases. Income from continuing operations per share of $2.07 for the quarter handily outpaced the Zacks Consensus Estimate of $1.35. Results were, however, down 3.7% from the prior-year quarter.

Citigroup generated higher market revenues during the reported quarter. Remarkably, the equity market revenues impressed on favorable market conditions and strong client volumes, driven by stellar derivatives, cash equities and prime finance performance. Further, fixed income revenues were on an upswing, highlighting strength in products and commodities, partly offset by lower revenues in rates and currencies.

At the same time, investment banking revenues decreased on disappointing debt underwriting business and reduced advisory revenues, partly muted by higher equity underwriting. Corporate lending was also on the downside. Though reserve releases supported results, rise in expenses was a major drag.

2. Successful cost-saving initiatives and unexpected release of reserves supported Wells Fargo’s (WFC - Free Report) fourth-quarter earnings of 64 cents per share, which surpassed the Zacks Consensus Estimate of 59 cents. Also, the bottom line compared favorably with the prior-year quarter figure of 60 cents.

Increased gains on equity securities and higher mortgage banking revenues supported the bank. Moreover, the company reflects prudent expense management. Further, a net benefit to provision of credit losses was reported during the quarter. However, reduced net interest income on lower rates negatively impacted results.

3. Unexpected large reserve releases, along with solid capital markets performance, drove JPMorgan’s (JPM - Free Report) fourth-quarter 2020 earnings of $3.79 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $2.72. Results included credit reserve releases.

During the quarter, the company reported credit reserve releases, which led to a net benefit of $1.9 billion. In a statement, the CEO Jamie Dimon said, “While positive vaccine and stimulus developments contributed to these reserve releases this quarter, our credit reserves of over $30 billion continue to reflect significant near-term economic uncertainty and will allow us to withstand an economic environment far worse than the current base forecasts by most economists.”

4. Bank of America’s (BAC - Free Report) fourth-quarter 2020 earnings of 59 cents per share outpaced the Zacks Consensus Estimate of 56 cents. However, the bottom line was 21% below the prior-year quarter level. Driven by rise in deal making activities during the fourth quarter, advisory fees jumped 45% from the prior-year quarter. Also, equity underwriting fees surged 141%. Conversely, debt issuance fees fell 10%. Nonetheless, total investment banking fees grew 36%.

Moreover, BofA’s trading numbers were decent. Sales and trading revenues (excluding DVA) grew 7% from the prior-year quarter. This was driven by a 30% surge in equity trading income, while fixed income trading declined 5%.

5. U.S. Bancorp (USB - Free Report) reported fourth-quarter 2020 earnings per share of 95 cents, in line with the Zacks Consensus Estimate. Results, however, compared unfavorably with the prior-year quarter’s figure of $1.08.

Higher revenues, along with deposit growth, were the driving factors. Though lower net interest income, along with escalating expenses and provisions disappointed, higher fee income acted as a tailwind.

6. Comerica (CMA - Free Report) delivered a fourth-quarter earnings surprise of 23.1%. Earnings per share of $1.49 comfortably surpassed the Zacks Consensus Estimate of $1.21. However, the bottom line came in lower than the prior-year quarter figure of $1.85.

The company’s results were supported by fall in provisions. Also, the capital position remained strong. Nevertheless, lower revenues, due to reduction in net interest and non-interest income, were recorded. Moreover, higher expenses and reduced loans balance were major drags.

Price Performance

Here is how the seven major stocks performed:
 

Company

Last Week

6 months

JPM

-2.7%

37.9%

BAC

-3.8%

31.8%

WFC

-0.1%

23.2%

C

-3.7%

22.3%

COF

-3.5%

73.1%

USB

-5.6%

27.4%

PNC

-0.7%

45.3%



Over the past four trading days, U.S. Bancorp and Bank of America have recorded the maximum loss, with their shares depreciating 5.6% and 3.8%, respectively. In addition, shares of Citigroup have declined 3.7% during the same period.

In the past six months, shares of Capital One Financial (COF - Free Report) have surged 73.1%, while PNC Financial and JPMorgan have appreciated 45.3% and 37.9%, respectively.

What’s Next?

In the coming week, the focus will solely be on earnings releases. Some banks are scheduled to report fourth-quarter results in the next five trading days. BancorpSouth Bank (BXS) and Bank of Hawaii Corporation (BOH) will release quarterly numbers on Jan 25, Capital One Financial, Synovus Financial Corp. (SNV) and UMB Financial Corporation (UMBF) on Jan 26, New York Community Bancorp, Inc. (NYCB) and SLM Corporation (SLM) on Jan 27, while CullenFrost Bankers, Inc. (CFR) will report on Jan 28.

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