The financial sector, which accounts for around one-fifth of the S&P 500 Index, had a mixed-bag Q2. Only two out of six big U.S. banks was able to beat overall. For the Finance sector, we now have Q2 results from 40.8% of the sector’s market capitalization in the S&P 500 index. Total earnings for these Finance companies are down 27% on 1.6% lower revenues, with 62.5% beating EPS estimates and
54.2% beating revenue estimates, per
Zacks Earnings Trends issued on Jul 20, 2022.
Let’s take a look at the big banks’ earnings which released lately.
Big Bank Earnings in Focus
Higher reserve build and decline in investment banking (IB) fees affected
JPMorgan’s ( JPM Quick Quote JPM - Free Report) second-quarter 2022 earnings of $2.76 per share, which missed the Zacks Consensus Estimate of $2.85. The reported quarter’s results included a net credit reserve build of $428 million. Net revenues as reported were $30.7 billion, up 1% year over year. The top line lagged the Zacks Consensus Estimate of $31.7 billion. Citigroup Inc. ’s (second-quarter 2022 income from continuing operations per share of $2.30 have handily outpaced the Zacks Consensus Estimate of $1.67. However, the reported figure declined 19% from the prior-year quarter. After reporting better-than-expected earnings, shares of the company moved up 13% in the key trading session on Jul 15, 2022. Basically, the rising rate environment went in favor the bank. C Quick Quote C - Free Report)
Revenues, net of interest expenses, moved up 11% year over year to $19.6 billion in the second quarter. The top line outpaced the Zacks Consensus Estimate of $18.43 billion (read:
Citigroup Up 13% Post Earnings: Time for Citi-Heavy ETFs?). Wells Fargo’s ( second-quarter 2022 earnings per share of 74 cents lagged the Zacks Consensus Estimate of 77 cents. Also, the bottom line declined 14% year over year. Total revenues came in at $17.03 billion, missing the Zacks Consensus Estimate of $17.46 billion. Also, the top line decreased 16% from the year-ago quarter. WFC Quick Quote WFC - Free Report)
Quarterly revenue generation from the business segments was decent on a year-over-year basis. The Consumer Banking and Lending segment’s top line declined 2%, while that of the Commercial Banking segment increased 18%. Further, revenues in the Corporate and Investment Banking and the Wealth and Investment Management units rose 4% and 5%, respectively.
Bank of America’s (second-quarter 2022 earnings of 73 cents per share have lagged the Zacks Consensus Estimate of 77 cents. The bottom line compared unfavorably with $1.03 per share earned in the prior-year quarter. BAC Quick Quote BAC - Free Report)
As expected, the company’s investment banking (IB) business did not perform well. IB fees of $1.1 billion plunged 47% year over year in the quarter, reflecting weaker industry-wide performance of the underwriting business. Advisory fees declined 3.7% to $392 million. Net revenues were $22.69 billion, which marginally lagged the Zacks Consensus Estimate of $22.97 billion. The top line grew 5.7% from the prior year.
Goldman Sachs Group, Inc.’s ( GS Quick Quote GS - Free Report) second-quarter 2022 earnings per share of $7.73 have surpassed the Zacks Consensus Estimate of $6.99. However, the bottom line fell 48.5% from the year-earlier quarter. Net revenues of $11.86 billion fell 23% from the year-ago quarter. Nonetheless, the top line beat the Zacks Consensus Estimate of $11.05 billion. Morgan Stanley’s ( MS Quick Quote MS - Free Report) second-quarter 2022 adjusted earnings of $1.44 per share lagged the Zacks Consensus Estimate of $1.55. The bottom line reflects a decline of 24% from the year-ago quarter.
The performance of the investment banking (“IB”) business was not good. Equity underwriting fees decreased 86% from the prior-year quarter and fixed-income underwriting declined 49%. Advisory fees were down 10% year over year. Therefore, IB fees declined 55%.
Net revenues were $13.1 billion, down 11% from the prior-year quarter. The top line missed the Zacks Consensus Estimate of $13.3 billion.
Though earnings have been downbeat-to-moderate, the sector may gain from rising rates (thanks to rising inflation and faster rate hikes). All the aforementioned companies have considerable exposure in funds like iShares U.S. Financial Services ETF (
IYG Quick Quote IYG - Free Report) , Invesco KBW Bank ( KBWB Quick Quote KBWB - Free Report) , Financial Select Sector SPDR ( XLF Quick Quote XLF - Free Report) , U.S. Broker-Dealers Index Fund ( IAI Quick Quote IAI - Free Report) and Vanguard Financials ETF ( VFH Quick Quote 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.