The Q4 earnings season for bank stocks commences tomorrow with some of the big names reporting their results, before the opening bell. Though the operating environment was tough at the beginning of 2016, the fourth quarter saw a slight reversal in the same.
Banks’ trading revenues are expected to continue rising on the back of strength in fixed income and currencies. Further, post-election volatility is expected to lead to a marginal improvement in equity trading as well.
Apart from this, banks are likely to witness an increase in investment banking fees attributable to robust M&A activity and increase in debt underwriting. Also, overall loan demand is expected to be strong, given an improving economy.
Further, cost control efforts should continue supporting the bottom line.
Also, pressure on net interest margin is likely to ease somewhat as the 10-year Treasury yield has been increasing since Nov 8, 2016. However, any benefit from the Fed rate hike in mid-December is less likely to be recorded in the upcoming results.
Moreover, banks’ mortgage banking fees are expected to witness a downturn as mortgage rates continued to rise during the quarter. Also, provision for credit losses are estimated to increase due to rising credit card debt, while energy loans are less likely to lead to any significant impact on the provisions.
Given these concerns, per our latest Earnings Trends report, overall earnings for the major banks in fourth-quarter 2016 are expected to decline 4.4% year over year.
Nonetheless, there might be a surprise in store for major banking stocks this earnings season. Let’s take a look at the four major banks slated to announce their results tomorrow.
JPMorgan Chase & Co. (JPM - Free Report) will kick off the fourth-quarter earnings season for the banking sector. With a Zacks Rank #2 (Buy) and Earnings ESP of 0.00%, we cannot conclusively predict that the company will be able to beat the Zacks Consensus Estimate this time around.
(You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.)
Persistently low interest rate environment, along with lower loan demand from corporates, are expected to hurt bottom-line growth. Nonetheless, improvement in trading revenues and absence of any legal costs are expected to support the results. Also, the provision requirement for energy sector loans should not be as high. (Read more: Why Q4 Earnings Should Supplement JPMorgan’s Rally).
Notably, JPMorgan surpassed the Zacks Consensus Estimate in all the trailing four quarters, as shown in the chart below:
For another big bank, Bank of America Corporation (BAC - Free Report) we cannot conclusively predict earnings beat in the quarter as weak mortgage operations and lower growth in investment banking fees are expected to hurt its financials. However, the company should witness improvement in trading income, while pressure on margins is expected to ease to some extent. (Read more: Will BofA Stock Continue to Rally Post Q4 Earnings?).
Further, BofA surpassed the Zacks Consensus Estimate in three of the trailing four quarters. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
For Wells Fargo & Company (WFC - Free Report) we are unable to conclusively predict earnings beat this time around either. Mounting expenses, disappointing retail banking customer activity and soft loan growth are expected to hurt the results. Nevertheless, the bank should benefit from momentum in mortgage business. Further, pressure on margins is expected to alleviate to some extent. (Read more: Wells Fargo Q4 Earnings: Disappointment in Store?).
This Zacks Rank #2 stock has posted an average beat of 0.5% for the trailing four quarters, having beaten the Zacks Consensus Estimate in three of them, as demonstrated in the chart below:
Unlike the above three banks, The PNC Financial Services Group, Inc. (PNC - Free Report) is likely to beat the Zacks Consensus Estimate in the fourth quarter. Stable net interest income and fee income are anticipated to drive top-line growth. However, seasonally higher expenses remain a potential headwind for this Zacks Rank #2 stock. (Read more: Is a Beat in Store for PNC Financial in Q4 Earnings?).
PNC Financial has posted an average beat of 2.7% for the trailing four quarters, having beaten the Zacks Consensus Estimate in three of them, as demonstrated in the chart below:
Check later our full write-up on earnings releases of these stocks.
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