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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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