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Banking Earnings Mixed-Bag: What's in Store for ETFs?

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The financial sector, which accounts for around one-fifth of the S&P 500 Index, had a mixed-bag Q4. Only one out of six big U.S. banks was able to beat overall. For the Finance sector, we now have Q4 results from 41.1% of the sector’s market capitalization in the S&P 500 index. Total Q4 earnings for these banks are up +9% from the same period last year on +6.9% higher revenues, with 83.3% beating EPS estimates and 61.1% beating revenue estimates.

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

Big Bank Earnings in Focus        

Robust advisory business, reserve release and a rise in loan demand drove JPMorgan’s (JPM - Free Report) fourth-quarter 2021 earnings of $3.33 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.01. Results included net credit reserve releases. Excluding this, earnings came in at $2.86 per share.

However, disappointing trading performance, lower interest rates and an increase in operating expenses were the major headwinds for JPMorgan’s quarterly results. Also, the company’s mortgage fees and related income plunged during the quarter. Net revenues as reported were $29.26 billion, relatively stable year over year. The top line lagged the Zacks Consensus Estimate of $29.95 billion.

Citigroup (C - Free Report) delivered an earnings surprise of 5.04% in fourth-quarter 2021. Income from continuing operations per share of $1.46 beat the Zacks Consensus Estimate of $1.39. However, the reported figure declined 24% from the prior-year quarter.

Citigroup’s investment banking revenues jumped, driven by equity underwriting and growth in advisory revenues. The dismal consumer banking business and higher operating expenses were the major headwinds. Revenues increased 1% year over year to $17.02 billion in Q4. The top line, however, lagged the Zacks Consensus Estimate of $17.06 billion.

Wells Fargo (WFC - Free Report) beat overall. Its fourth-quarter 2021 earnings per share of $1.38 surpassed the Zacks Consensus Estimate of 1.09. Also, the bottom line improved 86% year over year.

Improved IB and other asset-based fees, strong equity gains in WFC’s affiliated venture capital and private equity businesses and lower costs supported the bank’s performance.

The quarter’s total revenues came in at $20.86 billion, surpassing the Zacks Consensus Estimate of $18.73 billion. Moreover, the top line was higher than the year-ago quarter’s $18.5 billion. Yet, a decline in NII due to low yields from earning assets and lower loans were the undermining factors. 

Bank of America’s (BAC - Free Report) fourth-quarter 2021 earnings of 82 cents per share beat the Zacks Consensus Estimate of 76 cents. The bottom line compared favorably with 59 cents earned in the prior-year quarter. Results in the quarter included a net reserve release of $851 million.

Solid improvement in the lending scenario, consumer spending and economic rebound supported Bank of America’s NII growth. Further, robust IB performance and asset management business acted as tailwinds. However, trading numbers were not so impressive.

Net revenues were $22.06 billion, which marginally missed the Zacks Consensus Estimate of $22.08 billion. The top line grew 9.8% from the prior-year level.

The Goldman Sachs Group’s (GS - Free Report) fourth-quarter 2021 earnings per share of $10.81 have lagged the Zacks Consensus Estimate of $12.10. Further, the bottom line fell 10.5% from the year-earlier quarter.

While strength in the debt underwriting, wealth management and consumer banking businesses acted as a tailwind, the bank’s results were hurt by lower Fixed Income, Currency and Commodities Client Execution (“FICC”) revenues.

Net revenues of $12.64 billion rose 8% from the year-ago quarter. The top line beat the Zacks Consensus Estimate of $12.09 billion.

Morgan Stanley’s (MS - Free Report) fourth-quarter 2021 adjusted earnings of $2.08 per share easily outpaced the Zacks Consensus Estimate of $2.00. The bottom line reflects a rise of 8% from the year-ago quarter’s level. The performance of the investment banking business was strong.

Higher net interest income, mainly driven by a rise in total loan balance (up 24%) and a plunge in interest expenses, supported the top line. Quarterly net revenues were $14.5 billion, up 7% from the prior-year quarter. The top line lagged the Zacks Consensus Estimate of $14.8 billion.

ETF Impact   

Though earnings have been moderate, the sector may gain from rising rates (thanks to rising inflation and rate hike speculation). 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 - Free Report) . Given the decent valuation of the sector and chances of higher net interest rate margins, investors can keep a track of these ETFs for gains.