Tag: Tony Scherrer

Big Banks Fail to Impress Despite Earnings Beat

Big Banks Fail to Impress Despite Earnings Beat

Shares of JPMorgan Chase & Co. (JPM ), Citigroup Inc. (C) and Wells Fargo Corp. (WFC) all saw a significant dip Friday despite posting earnings results that beat consensus estimates for both top and bottom line numbers.
In Q1, analysts expected the S&P 500 to show profit gains of 17% year-over-year (YOY), while banks were projected to jump 28%.
(See also: 10 Financial Stocks Poised to Outperform.)
The sell-off suggests that banks failed to meet lofty targets demonstrated by investors confidence in financials over the past five years, driving the sector up 90% over that time and accelerating gains in the past year.
Rising rates, which were expected to provide a strong boost to banks, worked to increase interest income 10% for JPM and C in Q1, yet interest expenses were up in the 50% range.
Despite historically low levels of unemployment and a strong economy, loan growth was lackluster, as JPM’s lending business slumped 0.2% from the previous three quarters, WFC loans slumped 1% and Citigroup’s lending gained just 1%, attributed to an initiative to expand its struggling credit card business.
Higher rates failed to translate into a a jump in lending profits, with net interest margins remaining in the 3% range.
The story suggests that while interest rates were at historic lows, individuals took advantage and refinanced, perhaps borrowing even more than they needed.
This lull in loan demand explains a weakness across the board for the banks’ mortgage businesses in Q1.
The bank posted EPS of $1.12 on revenue of $21.9 billion, reflecting a dip from the year-ago period of $22.3 billion in sales, yet better than analysts’ expectations.