The performance of big banks has been better-than-expected this earnings season, despite a challenging operating environment. This has considerably lifted market sentiments for banking stocks.
Banks’ trading income is expected to improve on the back of strength in fixed income and currencies, while equity trading is likely to remain dismal. Further, mortgage banking income is projected to improve marginally during the quarter.
In addition, expense control initiatives are likely to continue supporting the bottom line. Also, the provision requirement is not likely to be high as it was in the first half of 2016, thanks to the rebound in oil prices.
However, margin pressure will continue to hurt revenues, as the Fed maintained its dovish stance. Further, a substantial rebound in advisory and investment banking fees is not expected.
While it is too early to predict the sector’s overall performance this quarter, per our Earnings Preview report, overall earnings for the Finance sector (of which major banks constitute a large part) are expected to increase 8.5% year over year in third-quarter 2016.
Today, we are discussing three major banking stocks that are slated to release their third-quarter results tomorrow, before the market opens.
The Bank of New York Mellon Corporation (BK - Analyst Report) expects net interest income to remain stable sequentially, while non-interest income is likely to be affected by a seasonal slowdown in transaction volumes and market-related revenues. Notably, overall expenses are likely to remain stable during the quarter. (Read more: BNY Mellon Q3 Earnings: What's in Store for the Stock?)
Also, the Zacks Consensus Estimate for the third quarter indicates a year-over-year increase of about 9.8%. With a Zacks Rank #2 (Buy) and Earnings ESP of 0.00%, we cannot conclusively predict that BNY Mellon will be able to beat the Zacks Consensus Estimate this time around. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Notably, BNY Mellon surpassed the Zacks Consensus Estimate in all the trailing four quarters as depicted in the chart below.
Fifth Third Bancorp (FITB - Analyst Report) expects net interest margin to decline on a sequential basis due to higher wholesale funding costs and day count. Further, expenses are likely to trend upward in the upcoming release. However, non-interest income might get a boost from improvement in mortgage banking revenues. (Read more: Will Fifth Third Stock Rise Further Post Q3 Earnings?)
With a Zacks Rank #2 and Earnings ESP of -2.17%, the chances of Fifth Third beating the Zacks Consensus Estimate are low. Also, the Zacks Consensus Estimate for the quarter remained unchanged over the last seven days.
Interestingly, Fifth Third has delivered positive earnings surprises in three of the trailing four quarters, as seen in the chart below:
The Zacks Consensus Estimate for BankUnited, Inc. (BKU - Analyst Report) is pegged at 53 cents, reflecting an increase of 6% year over year. Carrying a Zacks Rank #3 and an Earnings ESP of 0.00%, we cannot conclusively predict that BankUnited will be able to beat the Zacks Consensus Estimate. Also, estimates have declined 1.9% over the seven days.
Besides, this stock has outpaced the Zacks Consensus Estimate in three of the trailing four quarters as depicted in the chart below.
Stay tuned! Check back on our full write-up on earnings releases of these stocks
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