Bank Earnings Off to a Rough StartFourth quarter earnings season is off to a rough start in the banking sector, with the top three players selling off after mixed results.
Even so, the group has booked major gains since November when positive vaccine data from Pfizer Inc. (PFE) triggered a sustained rotation out of COVID-19 beneficiaries and into 2021 recovery plays. As a result, current selling pressure appears technical in nature, driven by overbought readings.
Bond yields are rising while the yield curve steepens, signaling a more favorable banking environment that should generate higher profit margins. Revenue remains a major obstacle, with most quarterly reports so far posting substantial year-over-year revenue declines as a result of the pandemic. Dow component JPMorgan Chase and Co. (JPM) is the only bank of the big three to grow revenue in the quarter, in line with its longstanding market leadership.
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JPMorgan Chase lifted to an all-time high ahead of last week’s strong earnings report and pulled back in a notable sell-the-news reaction. Two days of profit-taking could mark the start of an intermediate correction that targets unfilled gaps at 120 and 126. The Nov. 9 breakout gap between 105 and 110 remains unfilled as well, but that might not come into play until later in the year. When it does, it should mark a low-risk buying opportunity.
Bank of America
Bank of America Corp. (BAC) lost nearly 1% on Tuesday after beating Q4 2020 profit estimates and falling short on revenue, with a 9.9% year-over-year decline. Credit loss provisions dropped sharply during the quarter, indicating less stress on customer budgets as the world adjusts to the COVID-19 pandemic. The company announced it would buy back up to $2.9 billion in common stock in the first quarter, after getting Federal Reserve approval.
Citigroup Inc. (C) has booked the greatest downside of the three banks after beating Q4 2020 earnings by a wide margin on Friday. However, revenue fell 10.2% year-over-year, triggering a shareholder exodus that’s now relinquished nearly 8%. Unlike Bank of America, Citi credit losses went in the wrong direction during the quarter, rising to 3.73% of total loans, compared to just 1.84% in the same quarter last year.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.