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Banking Earnings Upbeat: Time to Buy Financial ETFs on Value?
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The financial sector, which accounts for around one-fifth of the S&P 500 Index, had a decent Q1. Results of the Finance sector have benefited from releases of loan-loss reserves that big banks believe will not be required any more, considering the improving outlook for the U.S. economy.
Activity levels in the equity underwriting, M&A and trading also hovered around record levels for the seasonally weak Q1, which more than offset continued softness in lending demand and margin pressures.
Let’s take a look at the big banks’ earnings which released lately.
Big Bank Earnings in Focus
Large reserve releases, along with solid capital markets performance, drove JPMorgan’s (JPM - Free Report) first-quarter 2021 earnings of $4.50 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.05. Results included credit reserve releases and the contribution to the company’s foundation. Excluding these, earnings amounted to $3.31 per share. The company had earned 78 cents in the prior-year quarter.
Net revenues as reported were $32.3 billion, up 14% from the year-ago quarter. The improvement reflects higher trading, mortgage and investment banking fees, while lower interest rates were an offsetting factor. Also, the top line beat the Zacks Consensus Estimate of $30.1 billion.
Bank of America’s (BAC - Free Report) first-quarter 2021 earnings of 86 cents per share handily beat the Zacks Consensus Estimate of 65 cents. Also, the bottom line compared favorably with 40 cents earned in the prior-year quarter level. Net revenues amounted to $22.8 billion, which surpassed the Zacks Consensus Estimate of $21.9 billion. The top line was on par with the prior-year level.
Driven by stellar deal-making activities during the first quarter, advisory fees jumped 45% from the prior-year quarter. Also, equity underwriting fees surged 356%, while debt issuance fees remained relatively stable. Hence, total investment banking fees soared 54%.
Given the strong capital markets performance, Goldman Sachs’ (GS - Free Report) first-quarter 2021 earnings per share of $18.60 significantly surpassed the Zacks Consensus Estimate of $9.79. Also, the bottom line compares favorably with $3.11 per share earned in the year-earlier quarter. Net revenues of $17.7 billion surged significantly from $8.74 billion in the year-ago quarter. The top line also beat the Zacks Consensus Estimate of $11.5 billion.
Citigroup (C - Free Report) delivered a positive earnings surprise of 1.4% in first-quarter 2021 on significant reserve releases. Income from continuing operations per share of $3.62 handily outpaced the Zacks Consensus Estimate of $2.56. Also, results compared favorably with $1.06 in the prior-year quarter.
Revenues were down 7% year over year to $19.3 billion during the first quarter. The top line, however, surpassed the Zacks Consensus Estimate of $18.9 billion. Lower revenues from Institutional Clients Group (ICG) and Global Consumer Banking (GCB), along with Corporate/Other resulted in this decline.
Solid mortgage and capital markets performance supported Wells Fargo’s (WFC - Free Report) first-quarter 2021 earnings of $1.05 per share, which surpassed the Zacks Consensus Estimate of 69 cents. Also, the bottom line compared favorably with the prior-year quarter’s 60 cents.
The quarter’s total revenues were $18.1 billion, outpacing the Zacks Consensus Estimate of $17.6 billion. Further, the top line was above the year-ago quarter’s $17.7 billion. Strong mortgage banking performance, improved trading and higher investment banking fees, and a rise in asset-based fees in the wealth and investment management unit supported the bank.
Morgan Stanley’s (MS - Free Report) first-quarter 2021 adjusted earnings of $2.22 per share easily outpaced the Zacks Consensus Estimate of $1.72. Also, the bottom line jumped substantially from $1.01 earned in the year-ago quarter. Net revenues were $15.7 billion, surging 61% from the prior-year quarter. Also, the top line beat the Zacks Consensus Estimate of $13.8 billion.
Performance of the IB business was impressive. Equity underwriting fees soared 347% from the prior-year quarter, and fixed-income underwriting jumped 41%. Also, advisory fees were up 33%. Therefore, IB fees surged 128%.
ETF Impact
All the aforementioned companies have considerable exposure in funds like iShares U.S. Financial Services ETF (IYG - Free Report) , PowerShares KBW Bank (KBWB - Free Report) , Financial Select Sector SPDR (XLF - Free Report) , U.S. Broker-Dealers Index Fund (IAI - Free Report) and Vanguard Financials ETF (VFH - Free Report) . Given the upbeat finance sector earnings, strong capital market activity and undervalued status of the sector, investors can keep track of these ETFs for gains.
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Banking Earnings Upbeat: Time to Buy Financial ETFs on Value?
The financial sector, which accounts for around one-fifth of the S&P 500 Index, had a decent Q1. Results of the Finance sector have benefited from releases of loan-loss reserves that big banks believe will not be required any more, considering the improving outlook for the U.S. economy.
Activity levels in the equity underwriting, M&A and trading also hovered around record levels for the seasonally weak Q1, which more than offset continued softness in lending demand and margin pressures.
Let’s take a look at the big banks’ earnings which released lately.
Big Bank Earnings in Focus
Large reserve releases, along with solid capital markets performance, drove JPMorgan’s (JPM - Free Report) first-quarter 2021 earnings of $4.50 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.05. Results included credit reserve releases and the contribution to the company’s foundation. Excluding these, earnings amounted to $3.31 per share. The company had earned 78 cents in the prior-year quarter.
Net revenues as reported were $32.3 billion, up 14% from the year-ago quarter. The improvement reflects higher trading, mortgage and investment banking fees, while lower interest rates were an offsetting factor. Also, the top line beat the Zacks Consensus Estimate of $30.1 billion.
Bank of America’s (BAC - Free Report) first-quarter 2021 earnings of 86 cents per share handily beat the Zacks Consensus Estimate of 65 cents. Also, the bottom line compared favorably with 40 cents earned in the prior-year quarter level. Net revenues amounted to $22.8 billion, which surpassed the Zacks Consensus Estimate of $21.9 billion. The top line was on par with the prior-year level.
Driven by stellar deal-making activities during the first quarter, advisory fees jumped 45% from the prior-year quarter. Also, equity underwriting fees surged 356%, while debt issuance fees remained relatively stable. Hence, total investment banking fees soared 54%.
Given the strong capital markets performance, Goldman Sachs’ (GS - Free Report) first-quarter 2021 earnings per share of $18.60 significantly surpassed the Zacks Consensus Estimate of $9.79. Also, the bottom line compares favorably with $3.11 per share earned in the year-earlier quarter. Net revenues of $17.7 billion surged significantly from $8.74 billion in the year-ago quarter. The top line also beat the Zacks Consensus Estimate of $11.5 billion.
Citigroup (C - Free Report) delivered a positive earnings surprise of 1.4% in first-quarter 2021 on significant reserve releases. Income from continuing operations per share of $3.62 handily outpaced the Zacks Consensus Estimate of $2.56. Also, results compared favorably with $1.06 in the prior-year quarter.
Revenues were down 7% year over year to $19.3 billion during the first quarter. The top line, however, surpassed the Zacks Consensus Estimate of $18.9 billion. Lower revenues from Institutional Clients Group (ICG) and Global Consumer Banking (GCB), along with Corporate/Other resulted in this decline.
Solid mortgage and capital markets performance supported Wells Fargo’s (WFC - Free Report) first-quarter 2021 earnings of $1.05 per share, which surpassed the Zacks Consensus Estimate of 69 cents. Also, the bottom line compared favorably with the prior-year quarter’s 60 cents.
The quarter’s total revenues were $18.1 billion, outpacing the Zacks Consensus Estimate of $17.6 billion. Further, the top line was above the year-ago quarter’s $17.7 billion. Strong mortgage banking performance, improved trading and higher investment banking fees, and a rise in asset-based fees in the wealth and investment management unit supported the bank.
Morgan Stanley’s (MS - Free Report) first-quarter 2021 adjusted earnings of $2.22 per share easily outpaced the Zacks Consensus Estimate of $1.72. Also, the bottom line jumped substantially from $1.01 earned in the year-ago quarter. Net revenues were $15.7 billion, surging 61% from the prior-year quarter. Also, the top line beat the Zacks Consensus Estimate of $13.8 billion.
Performance of the IB business was impressive. Equity underwriting fees soared 347% from the prior-year quarter, and fixed-income underwriting jumped 41%. Also, advisory fees were up 33%. Therefore, IB fees surged 128%.
ETF Impact
All the aforementioned companies have considerable exposure in funds like iShares U.S. Financial Services ETF (IYG - Free Report) , PowerShares KBW Bank (KBWB - Free Report) , Financial Select Sector SPDR (XLF - Free Report) , U.S. Broker-Dealers Index Fund (IAI - Free Report) and Vanguard Financials ETF (VFH - Free Report) . Given the upbeat finance sector earnings, strong capital market activity and undervalued status of the sector, investors can keep track of these ETFs for gains.
Want key ETF info delivered straight to your inbox?
Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>