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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 Q3. For the Finance sector, we now have Q3 earnings from 40.6% of the sector’s market cap in the S&P 500 index. Total earnings for these Finance sector companies are up +42.2% on +9.9% higher revenues, with 92.9% beating EPS estimates and 78.6% beating revenue estimates.

Let’s take a look at the big banks’ earnings which released lately.

Big Bank Earnings in Focus         

A robust advisory business, reserve release, and a modest rise in demand for loans drove JPMorgan’s (JPM - Free Report) third-quarter 2021 earnings of $3.74 per share. The bottom line also handily outpaced the Zacks Consensus Estimate of $3.00.

Net revenues as reported were $29.65 billion, up 1% from the year-ago quarter. This rise was largely driven by higher IB fees and an increase in the loan balance. The top line beat the Zacks Consensus Estimate of $29.45 billion. Net interest income inched up 1% year over year to $13.1 billion. Non-interest income also grew 2% to $16.6 billion, primarily driven by a robust IB performance, and higher lending- and deposit-related fees.

Bank of America’s (BAC - Free Report) third-quarter 2021 earnings of 85 cents per share beat the Zacks Consensus Estimate of 71 cents. The bottom line compared favorably with 51 cents earned in the prior-year quarter. Results in the quarter included reserve release of $1.1 billion.

The stock gained almost 2.8% in pre-market trading, reflecting investors’ bullish sentiments over robust revenue performance. The top line benefited from solid equity trading, advisory and debt underwriting businesses, and a modest rise in loan demand. Net revenues amounted to $22.8 billion, which surpassed the Zacks Consensus Estimate of $21.7 billion. The top line grew 11.9% from the prior-year level.

The Goldman Sachs Group Inc.’s (GS - Free Report) third-quarter 2021 earnings per share of $14.93 significantly surpassed the Zacks Consensus Estimate of $9.78. Further, the bottom line improved 66% from the year-earlier quarter. Net revenues of $13.61 billion rose 26% from the year-ago quarter. The top line beat the Zacks Consensus Estimate of $11.25 billion.

Citigroup Inc. (C - Free Report) delivered an earnings surprise of 30.3% in third-quarter 2021. Income from continuing operations per share of $2.15 handily outpaced the Zacks Consensus Estimate of $1.65. Also, results compared favorably with $1.36 in the prior-year quarter.Revenues were down 1% year over year to $17.15 billion in the September-ended quarter. The top line missed the Zacks Consensus Estimate of $17.36 billion. Lower revenues from the business segment, GCB, caused the decline.

Morgan Stanley’s (MS - Free Report) third-quarter 2021 adjusted earnings of $2.04 per share easily outpaced the Zacks Consensus Estimate of $1.70. The bottom line reflects a rise of 22.9% from the year-ago quarter’s level. Net revenues were $14.8 billion, up 25.9% from the prior-year quarter. The top line surpassed the Zacks Consensus Estimate of $13.85 billion.

Wells Fargo & Company (WFC - Free Report) third-quarter 2021 earnings of $1.17 per share surpassed the Zacks Consensus Estimate of 1.03. Also, the bottom line improved 67% year over year. Total quarterly revenues were $18.8 billion, outpacing the Zacks Consensus Estimate of $18.4 billion. However, the top line was 2% lower than the year-ago quarter.

Wells Fargo’s net interest income for the third quarter came in at $8.9 billion, down 5% year over year due to low yields on earning assets and lower loan balances, partially offset by reduced mortgage-backed securities premium amortization. Also, net interest margin (on a taxable-equivalent basis) shrunk 10 basis points to 2.13%.

ETF Impact    

Apart from upbeat earnings, the sector may gain from rising rates (thanks to rising inflation and taper talks). 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) and Vanguard Financials ETF (VFH). 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.