Bank Earnings and the 1st-Quarter Outlook

Numbers mostly positive for large US banks

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Apr 25, 2017
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Leading quarterly earnings each quarter, banks are often a catalyst for the U.S. market’s quarterly valuation trend. In the Dow Jones, JPMorgan (JPM, Financial) and Goldman Sachs (GS, Financial) provide representative earnings for the banking sector. JPMorgan is one of the industry’s leading banking conglomerates and Goldman Sachs has begun to expand into retail services.

Both companies are reporting losses in April while the Dow Jones and Standard & Poor's 500 are just above zero.

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JPMorgan

On April 13, JPMorgan reported first-quarter earnings results, beating expectations for both revenue and earnings. Revenue of $25.59 billion beat expectations by $710 million and increased 6.3% from the comparable quarter. Earnings per share of $1.65 beat expectations by 13 cents and increased from $1.35 in the comparable quarter.

The first quarter’s revenue was the highest of its five previous quarters. Net income for the firm has been steadily increasing from $5.52 billion in the first quarter of 2016 to $6.45 billion in the first quarter of 2017.

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Corporate and investment banking, which includes the firm’s trading business, reported the highest comparable quarter growth with an increase of 17%. Corporate and investment banking accounted for 37% of revenue. Consumer and community banking reported the greatest majority of revenue at 43%.

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JPMorgan’s stock is selling at $87.50. In April JPMorgan’s stock is down 0.39%. Since its earnings announcement on April 13 it has gained 2.46%. Year to date it has a return of 1.39%.

Goldman Sachs

Earnings for Goldman Sachs were below estimates in the first quarter. Revenue of $8.03 billion missed estimates by $500 million, but revenue reported a 26.7% increase from the comparable quarter. Earnings per share of $5.15 missed estimates by 2 cents and increased from $2.68 in the comparable quarter.

A breakdown of the bank’s segment results is included below:

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Institutional client services, which includes the firm’s trading business, was a factor for the quarter. The business segment accounted for 42% of revenue and it was down 7% from the previous quarter and 2% from the comparable quarter.

Goldman Sachs has been expanding into retail banking with the acquisition of GE Capital Bank’s U.S. online deposits and the launch of online lending platform Marcus. While the firm has not fully disclosed financial details of the expansion, its investing and lending business increased 1,583% from the first quarter of 2016 to $1.46 billion in the first quarter of 2017.

Goldman’s stock is selling at $223.22. In April, the bank’s stock is down 2.83% and since its earnings announcement the stock is down -1.34%. Year to date it has a return of -6.78%.

Other banking results

A roundup of earnings results from other large U.S. banks is included below:

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First-quarter banking results

Overall, the industry’s top banks have reported good revenue and earnings growth in the first quarter. The S&P Banks Select Index is reporting a gain of 5.40% over the last five days. While the outlook is positive for bank stocks, two factors are likely to keep trading prices volatile. Financial regulation reform is a leading political topic likely to be discussed in Washington, D.C., in June with eased regulatory burdens helping banks and no changes continuing to keep regulatory burdens high. Corporate profits overall will also be affected by tax policy reform that is currently being debated.

Economic outlook

Morningstar’s Bob Johnson provides his perspective on March economic data in a recent Morningstar report.

In the fourth quarter of 2016, corporate profits reported a year-over-year increase of 22.3%. First quarter data on corporate profits will be released on May 26 with investors watching for continued momentum.

Disclosure: I do not own any stocks included in this article.

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