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Banking Puts Up a Mixed Show in Q4 Earnings, ETFs Down

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The Q4 earnings season has so far been moderate for the financial sector, which accounts for around one-fifth of the S&P 500 Index. About 44% of the sector’s total market capitalization in the index has come up with their results.

Total earnings for these Finance companies are up 17.2% from the same period last year on 1.9% higher revenues, with 88.9% beating the EPS estimates and 74.1% surpassing the top-line estimates.

Four big banks reported mixed results while two crushed estimates. Let’s take a look at major banking earnings releases in detail:

Big Bank Earnings in Focus

JPMorgan’s (JPM - Free Report)  fourth-quarter 2020 earnings of $3.79 per share handily outpaced the Zacks Consensus Estimate of $2.72.Results included credit reserve releases. Excluding these, earnings amounted to $3.07 per share. The company had earned $2.57 in the prior-year quarter.

Net revenues as reported were $29.22 billion, up 3% from the year-ago quarter. The improvement reflects higher trading, mortgage and investment banking fees, while lower interest rates were an offsetting factor. However, the top line marginally missed the Zacks Consensus Estimate of $29.28 billion.

Wells Fargo’s (WFC - Free Report) fourth-quarter 2020 earnings of 64 cents per share surpassed the Zacks Consensus Estimate of 59 cents. Also, the bottom line compared favorably with the prior-year quarter figure of 60 cents. The quarter’s total revenues came in at $17.9 billion, lagging the Zacks Consensus Estimate of $18 billion. Further, the top line was lower than the year-ago quarter’s $19.9 billion.

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. Revenues were down 10% year over year to $16.5 billion during the December-end quarter. The reported figure also lagged the Zacks Consensus Estimate of $16.6 billion. Lower revenues from Institutional Clients Group and Global Consumer Banking, along with negative revenues from Corporate/Other, resulted in this decline.

Bank of America’s (BAC - Free Report) fourth-quarter 2020 earnings of 59 cents per share beat the Zacks Consensus Estimate of 56 cents. However, the bottom line was 21% below the prior-year quarter level. Net revenues amounted to $20.1 billion, which marginally missed the Zacks Consensus Estimate of $20.4 billion. Further, the top line was down 10% on a year-over-year basis.Consumer banking business put up a dismal performance while advisory fees jumped 45% from the prior-year quarter due to a rise in deal-making activities.

Goldman Sachs (GS - Free Report) reported fourth-quarter 2020 earnings per share of $12.08, significantly surpassing the Zacks Consensus Estimate of $6.99. Also, the bottom line compares favorably with earnings of $4.69 per share recorded in the year-earlier quarter.

Goldman’s net revenues were up 18% year over year to $11.74 billion in the fourth quarter. The revenues also beat the Zacks Consensus Estimate of $9.65 billion. The Investment Banking division recorded revenue growth of 27% while the Global Markets division posted revenue growth of 23%.

Morgan Stanley’s (MS - Free Report) fourth-quarter 2020 adjusted earnings of $1.92 per share easily outpaced the Zacks Consensus Estimate of $1.29. Also, the bottom line improved 48% from the year-ago quarter. Net revenues came in at $13.6 billion, up 26% from the prior-year quarter. Also, the top line beat the Zacks Consensus Estimate of $10.3 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 ETFs, but are rather heavy on iShares U.S. Broker-Dealers & Securities Exchanges ETF (IAI - Free Report) . Most of these ETFs declined in the last five days — which marked the peak of banking earnings releases. The recent decline in long-term U.S. treasury yields resulted in the flattening of the yield curve and hurt the funds.

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