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Bank Stock Roundup: Q4 Earnings Commences, BofA, JPMorgan & Citi Top Estimates

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Most banks that reported fourth-quarter 2019 results this week managed to record bottom-line growth on higher fee income, driven by fixed income trading revenues resulting from strong client activities. Further, remarkable investment banking performance, aided by strong underwriting business and steady consumer banking, was on the upside.

In addition, mortgage banking revenues rebounded on lower rates mainly owing to rise in mortgage origination volume.  In addition, escalation in loans and deposits acted as tailwinds. However, advisory business was on the downside.

Also, net interest margin was disappointing, adversely impacted by the Fed’s rate cuts. Along with low rates, flatter yield curve, deposit pricing and shift in funding mix kept net interest income low. Additionally, an overall rise in non-interest expenses, due to high spending on technology and personnel, and other market development initiatives, was an undermining factor. This apart, provisions soared.

Nevertheless, banks continued with their restructuring and streamlining initiatives. Moreover, legal expenses remained manageable.


 

(Read: Bank Stock Roundup for the Week Ending Dec 20, 2019)

Important Earnings of the Week

1. Citigroup (C - Free Report) delivered a positive earnings surprise of 4.4% in fourth-quarter 2019, backed by revenue strength. Adjusted earnings per share of $1.90 for the quarter handily outpaced the Zacks Consensus Estimate of $1.82. Citigroup recorded higher revenues riding on consumer banking, investment banking and market revenues during the reported quarter. Though equity market revenues disappointed on a more challenging environment in derivatives, fixed income revenues were on an upswing. Moreover, investment banking revenues increased on strong underwriting business, partly muted by lower advisory business. Further, loans escalated. However, rise in expenses and cost of credit was on the downside. (Read more: Citigroup Q4 Earnings Beat Estimates on Top-Line Strength)

2. Improved trading and underwriting performance drove Bank of America’s (BAC - Free Report) fourth-quarter 2019 earnings of 74 cents per share, which surpassed the Zacks Consensus Estimate of 68 cents. Also, the figure was up 6% from the prior-year quarter. As expected, BofA came out with improved trading and investment banking numbers. Sales and trading revenues (excluding DVA) grew 13%, driven by 25% rise in fixed income trading, while equity trading income witnessed a fall of 4% on year-over-year basis. Investment banking fees grew 9% as underwriting fees recorded a rise. Equity underwriting income and debt underwriting fees grew 18% and 14%, respectively. On the other hand, advisory fees fell 5%. (Read more: BofA Q4 Earnings Top on Trading, Underwriting & Loans)

3. Better-than-expected trading performance and rise in mortgage banking fees drove JPMorgan’s (JPM - Free Report) fourth-quarter 2019 earnings of $2.57 per share, which handily outpaced the Zacks Consensus Estimate of $2.32. Lower interest rates drove mortgage banking fees (up 133%), mainly due to 94% rise in mortgage origination volume. Further, as expected, both equity and debt underwriting fees improved, rising 10% and 11%, respectively. Thus, this resulted in an increase in investment banking fees (up 5%) despite a 3% fall in advisory fees. Also, fixed income markets revenues surged 86%, given a favorable comparison against a soft prior-year quarter performance and strong client activity across products. Likewise, equity markets revenues grew 15% driven by strong equity markets performance. (Read more: JPMorgan Q4 Earnings Top on Consumer, Trading Business)

4. Riding on high revenues, PNC Financial (PNC - Free Report) reported a positive earnings surprise of 1.7% in the fourth quarter. Earnings per share of $2.97 surpassed the Zacks Consensus Estimate of $2.92. Further, the bottom line reflects an 8% jump from the prior-year quarter’s reported figure. Higher revenues, driven by higher net interest income and escalating fee income, aided the company’s results. However, rise in costs and provisions were headwinds. Moreover, lower net interest margin was another concern. (Read more: PNC Financial Q4 Earnings Top Estimates, Costs Flare Up)

5. Wells Fargo’s (WFC - Free Report) fourth-quarter 2019 adjusted earnings of 93 cents per share lagged the Zacks Consensus Estimate of $1.12, on lower net interest income and rise in expenses. Results exclude litigation accruals. Including litigation accruals (not tax-deductible) worth 33 cents per share related to certain matters, earnings came in at 60 cents per share. Reduced net interest income on lower rates and rise in expenses negatively impacted the results. Moreover, provisions soared. However, higher fee income, driven by improved mortgage banking business, was on the upside. Further, escalation in loans and deposits acted as tailwinds. (Read more: Wells Fargo's Q4 Earnings Lag Estimates, Costs Upp)

6. U.S. Bancorp (USB - Free Report) reported fourth-quarter 2019 adjusted earnings per share of $1.08, in line with the Zacks Consensus Estimate. The bottom line jumped slightly from the prior-year quarter figure. Higher loan and deposit balances were the driving factors. However, fall in interest and fee income was recorded. Also, escalating expenses and provisions were the undermining factors. (Read more: U.S. Bancorp Q4 Earnings Meet Estimates, Costs Rise)

Price Performance

Here is how the seven major stocks performed:
 

Company

Last Week

6 months

JPM

0.9%

20.9%

BAC

-0.1%

21.2%

WFC

-6.2%

11.0%

C

2.2%

15.2%

COF

1.3%

15.4%

USB

-2.6%

5.6%

PNC

-3.0%

12.7%



Over the last five trading sessions, Citigroup and Capital One Financial COF were the major gainers, with their shares rallying 2.2% and 1.3%, respectively. However, shares of Wells Fargo and PNC Financial declined 6.2% and 3%, respectively.

In the past six months, shares of BofA and JPMorgan have jumped 21.2% and 20.9%, respectively. In addition, shares of Capital One Financial have appreciated 15.4%.

What’s Next?

In the coming week, the focus will solely be on earnings releases. Some banks are scheduled to report fourth-quarter earnings in the next five trading days. Capital One Financial and Comerica Incorporated (CMA - Free Report) will report on Jan 21, Fifth Third Bancorp (FITB - Free Report) and Northern Trust Corporation (NTRS - Free Report) on Jan 22, while Huntington Bancshares Incorporated HBAN, BankUnited, Inc. (BKU - Free Report) , M&T Bank Corporation (MTB - Free Report) and KeyCorp (KEY - Free Report) will release their quarterly numbers on Jan 23.

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