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Banking Earnings Decent: 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 Q2. Let’s take a look at the big banks’ earnings which released lately.

Big Bank Earnings in Focus

Large reserve releases, solid investment banking (“IB”) performance and modest rise in loan demand drove JPMorgan’s (JPM - Free Report) second-quarter 2021 earnings of $3.78 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.05.

Results included credit reserve releases. Excluding this, earnings amounted to $3.03 per share. The company had earned $1.38 in the prior-year quarter. Net revenues as reported were $30.48 billion, down 8% from the year-ago quarter. The decline was largely owing to fall in trading and mortgage banking fees, and lower interest rates, while higher IB income was an offsetting factor. The top line beat the Zacks Consensus Estimate of $29.98 billion.

Bank of America’s (BAC - Free Report) second-quarter 2021 earnings of $1.03 per share handily beat the Zacks Consensus Estimate of 77 cents. The bottom line compared favorably with 37 cents earned in the prior-year quarter. Net revenues amounted to $21.5 billion, which lagged the Zacks Consensus Estimate of $21.8 billion. The top line declined 3.9% from the prior-year level.

Net interest income (fully taxable-equivalent basis) declined 3.9% year over year to $10.3 billion, mainly due to lower interest rates and soft loan demand. Also, net interest yield contracted 26 basis points (bps) to 1.61%.

The Goldman Sachs Group, Inc.’s (GS - Free Report) second-quarter 2021 earnings per share of $15.02 have significantly surpassed the Zacks Consensus Estimate of $9.90. Also, the bottom line compares favorably with 53 cents per share earned in the year-earlier quarter. Net revenues of $15.4 billion rose 16% from the year-ago quarter. The top line beat the Zacks Consensus Estimate of $11.7 billion.

Citigroup Inc. (C - Free Report) came out with quarterly earnings of $2.84 per share, beating the Zacks Consensus Estimate of $1.94 per share. This compares to earnings of $0.50 per share a year ago. These figures are adjusted for non-recurring items. Citigroup posted revenues of $17.47 billion for the quarter ended June 2021, surpassing the Zacks Consensus Estimate by 0.62%. This compares to year-ago revenues of $19.77 billion.

Morgan Stanley’s (MS - Free Report) second-quarter 2021 adjusted earnings of $1.89 per share easily outpaced the Zacks Consensus Estimate of $1.63. However, the bottom line reflects a decline of 3.6% from the year-ago quarter.

Net revenues were $14.8 billion, up 8% from the prior-year quarter. The top line surpassed the Zacks Consensus Estimate of $13.9 billion. Net interest income was $1.9 billion, up 16.6% from the year-ago quarter. This was largely due to a 54% decline in interest expenses.

ETF Impact     

All the aforementioned companies have considerable exposure in funds like iShares U.S. Financial Services ETF (IYG - Free Report) , Invesco 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 decent valuation of the sector, investors can keep track of these ETFs for gains.