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JPMorgan, Citigroup and Wells Fargo are part of Zacks Earnings Preview
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For Immediate Release
Chicago, IL – October 16, 2023 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes JPMorgan (JPM - Free Report) , Citigroup (C - Free Report) and even Wells Fargo (WFC - Free Report) .
Analyzing Positive Bank Earnings: An Uncertain Outlook
The market liked what it saw in the quarterly releases from JPMorgan, Citigroup and even Wells Fargo. There was plenty to like in these results, with the resilient economy helping keep credit demand positive and higher interest rates allowing them to charge more for those loans.
The bank worries that took center stage in the Spring following the Silicon Valley Bank fiasco have largely eased by now. But those solvency worries were never meant for JPMorgan, Citi, and Wells Fargo, which reported Friday morning, and Bank of America, which is scheduled to report Tuesday morning (October 17th). These banks regularly go through the Fed’s stress tests and are perceived as very safe. The issue was all along centered on the small and mid-sized regional banks that will start reporting results this week.
We should note, however, that while JPMorgan and its large money-center peers may not have been directly affected by the Spring banking issue, even these big players have been forced to offer higher rates to depositors, pressuring their net interest margins. The Q3 net interest margin at JPMorgan, Citi, and Wells was still up from the year-earlier period but has notably leveled off relative to what they reported in the preceding quarter.
Getting back to the group’s Q3 results, the fact that the investment banking business was weak during the period was no surprise for the market. This has been the trend for many quarters, as tighter monetary policy and other macroeconomic headwinds have weighed on deal-making. While there are some ‘green shoots’ on the horizon concerning M&A and IPO activities, no significant improvement is expected in these businesses until the macroeconomic ‘clouds’ lift.
JPMorgan beat on the top and bottom-lines, with Q3 earnings and revenues up +35.1% and +21.9% from the year-earlier levels, respectively. The bank benefited from First Republic purchase, but JPMorgan’s earnings would still be up significantly relative to the year-earlier level as a result of improved margins.
Another area of potential read-through from these reports is commercial real estate exposure, which is a far bigger line of business for the regional operators than for the likes of JPMorgan, Citi, and Wells Fargo. Of these three, Wells Fargo is perhaps more exposed here, as reflected in the roughly $1.2 billion reserve booking, up from $784 million in the year-earlier period, a big part of which reflected the Wells’ commercial real estate exposure.
Management’s commentary about the economic outlook reflected tentativeness, citing continued downside risks, though they acknowledged the economy’s resiliency and increasing odds of a ‘soft landing’ for the economy.
Bank stocks have notably lagged the broader market, particularly since the onset of regional bank worries in March.
The issue with the bank stocks isn’t their current earnings power but rather how their profitability will shape up in the coming economic slowdown. Bank investors are wary of the group’s track record of making a lot of money during the good times, which the group then gives back during the bad times. The question is how ‘bad’ will the coming ‘bad times’ be for the economy and what will that do to bank earnings.
Regarding the Finance sector scorecard for Q3, we now have results from 19.2% of the sector’s market capitalization in the S&P 500 index. Total earnings for these companies are up +21.9% from the same period last year on +13.6% higher revenues, with 100% beating EPS estimates and 66.67% beating revenue estimates.
Looking at the Finance sector as a whole, total Q3 earnings for the sector are expected to be up +9.5% on +2.4% higher revenues.
As noted earlier, skeptics of the banking industry argue that the group gives away all the profits it had accumulated during the good times when the macro environment turns south. The Covid downturn was an anomaly in that respect, but there is some truth to the allegation.
We will see how the economic picture unfolds in the coming quarters, but the credit quality metrics in the reported Q3 results do not point towards a material deterioration, even though delinquencies have started going up from the record low levels of the Covid years.
The Earnings Big Picture
Looking at 2023 Q3 as a whole, the expectation currently is of S&P 500 earnings declining by -1.3% from the same period last year on +0.8% higher revenues. This would follow the -7.1% decline on +1.1% higher revenues in 2023 Q2.
2023 Q3 is expected to be the last period of declining earnings for the index, with positive growth resuming from 2023 Q4 onwards. In fact, had it not been for the Energy sector drag, earnings growth in 2023 Q3 would already be positive.
Excluding the Energy sector, however, net margins would be modestly up from the year-earlier period.
One sector that has made significant progress on the margins front is the Tech sector, whose year-over-year comparison turned positive in the preceding period and is expected to expand further this quarter.
Look at current expectations for next year and the year after to understand the disconnect between the reality of current bottom-up aggregate earnings estimates and the seemingly never-ending worries about an impending economic downturn. That said, most economic analysts have been steadily lowering their recessionary odds in recent months.
This Week’s Notable Earnings Releases
JPMorgan, Wells Fargo, and Citigroup weren’t the first companies to report Q3 results, as several companies with fiscal quarters ending in August that we count as part of our September-quarter tally have been coming out with quarterly numbers in recent weeks. But the reporting cycle will really get going this week, with almost 150 companies reporting Q3 results, including 54 S&P 500 members.
Including Friday’s results from the big banks, we now have Q3 results from 32 S&P 500 members. Total Q3 earnings for these 32 index members are up +13.5% from the same period last year on +8.8% higher revenues, with 87.5% beating EPS estimates and 65.6% beating revenues estimates.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>> Bank Earnings Loom: A Challenging Set up
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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JPMorgan, Citigroup and Wells Fargo are part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – October 16, 2023 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes JPMorgan (JPM - Free Report) , Citigroup (C - Free Report) and even Wells Fargo (WFC - Free Report) .
Analyzing Positive Bank Earnings: An Uncertain Outlook
The market liked what it saw in the quarterly releases from JPMorgan, Citigroup and even Wells Fargo. There was plenty to like in these results, with the resilient economy helping keep credit demand positive and higher interest rates allowing them to charge more for those loans.
The bank worries that took center stage in the Spring following the Silicon Valley Bank fiasco have largely eased by now. But those solvency worries were never meant for JPMorgan, Citi, and Wells Fargo, which reported Friday morning, and Bank of America, which is scheduled to report Tuesday morning (October 17th). These banks regularly go through the Fed’s stress tests and are perceived as very safe. The issue was all along centered on the small and mid-sized regional banks that will start reporting results this week.
We should note, however, that while JPMorgan and its large money-center peers may not have been directly affected by the Spring banking issue, even these big players have been forced to offer higher rates to depositors, pressuring their net interest margins. The Q3 net interest margin at JPMorgan, Citi, and Wells was still up from the year-earlier period but has notably leveled off relative to what they reported in the preceding quarter.
Getting back to the group’s Q3 results, the fact that the investment banking business was weak during the period was no surprise for the market. This has been the trend for many quarters, as tighter monetary policy and other macroeconomic headwinds have weighed on deal-making. While there are some ‘green shoots’ on the horizon concerning M&A and IPO activities, no significant improvement is expected in these businesses until the macroeconomic ‘clouds’ lift.
JPMorgan beat on the top and bottom-lines, with Q3 earnings and revenues up +35.1% and +21.9% from the year-earlier levels, respectively. The bank benefited from First Republic purchase, but JPMorgan’s earnings would still be up significantly relative to the year-earlier level as a result of improved margins.
Another area of potential read-through from these reports is commercial real estate exposure, which is a far bigger line of business for the regional operators than for the likes of JPMorgan, Citi, and Wells Fargo. Of these three, Wells Fargo is perhaps more exposed here, as reflected in the roughly $1.2 billion reserve booking, up from $784 million in the year-earlier period, a big part of which reflected the Wells’ commercial real estate exposure.
Management’s commentary about the economic outlook reflected tentativeness, citing continued downside risks, though they acknowledged the economy’s resiliency and increasing odds of a ‘soft landing’ for the economy.
Bank stocks have notably lagged the broader market, particularly since the onset of regional bank worries in March.
The issue with the bank stocks isn’t their current earnings power but rather how their profitability will shape up in the coming economic slowdown. Bank investors are wary of the group’s track record of making a lot of money during the good times, which the group then gives back during the bad times. The question is how ‘bad’ will the coming ‘bad times’ be for the economy and what will that do to bank earnings.
Regarding the Finance sector scorecard for Q3, we now have results from 19.2% of the sector’s market capitalization in the S&P 500 index. Total earnings for these companies are up +21.9% from the same period last year on +13.6% higher revenues, with 100% beating EPS estimates and 66.67% beating revenue estimates.
Looking at the Finance sector as a whole, total Q3 earnings for the sector are expected to be up +9.5% on +2.4% higher revenues.
As noted earlier, skeptics of the banking industry argue that the group gives away all the profits it had accumulated during the good times when the macro environment turns south. The Covid downturn was an anomaly in that respect, but there is some truth to the allegation.
We will see how the economic picture unfolds in the coming quarters, but the credit quality metrics in the reported Q3 results do not point towards a material deterioration, even though delinquencies have started going up from the record low levels of the Covid years.
The Earnings Big Picture
Looking at 2023 Q3 as a whole, the expectation currently is of S&P 500 earnings declining by -1.3% from the same period last year on +0.8% higher revenues. This would follow the -7.1% decline on +1.1% higher revenues in 2023 Q2.
2023 Q3 is expected to be the last period of declining earnings for the index, with positive growth resuming from 2023 Q4 onwards. In fact, had it not been for the Energy sector drag, earnings growth in 2023 Q3 would already be positive.
Excluding the Energy sector, however, net margins would be modestly up from the year-earlier period.
One sector that has made significant progress on the margins front is the Tech sector, whose year-over-year comparison turned positive in the preceding period and is expected to expand further this quarter.
Look at current expectations for next year and the year after to understand the disconnect between the reality of current bottom-up aggregate earnings estimates and the seemingly never-ending worries about an impending economic downturn. That said, most economic analysts have been steadily lowering their recessionary odds in recent months.
This Week’s Notable Earnings Releases
JPMorgan, Wells Fargo, and Citigroup weren’t the first companies to report Q3 results, as several companies with fiscal quarters ending in August that we count as part of our September-quarter tally have been coming out with quarterly numbers in recent weeks. But the reporting cycle will really get going this week, with almost 150 companies reporting Q3 results, including 54 S&P 500 members.
Including Friday’s results from the big banks, we now have Q3 results from 32 S&P 500 members. Total Q3 earnings for these 32 index members are up +13.5% from the same period last year on +8.8% higher revenues, with 87.5% beating EPS estimates and 65.6% beating revenues estimates.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>> Bank Earnings Loom: A Challenging Set up
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.