Banking Powerhouses to Kick Off Earnings Season This Week- How Will They Perform in Light of Recent Turmoil?

On the other side of the Atlantic, Credit Suisse, which has been involved in a slow train crash for the last ten years, also just so happened to finally crash and be taken over by UBS at the same time. A coincidence, maybe, that together wiped out almost US $500 billion in bank assets.

There is no doubt that the extraordinary speed of the recent interest rate rises has shaken the very underpinnings of global banking, and although tensions have eased somewhat since a month ago, the fallout from the Silicon Valley Bank and Signature Bank failures is still yet to be fully felt in the US. Jamie Dimon, CEO of JPMorgan Chase, said in his annual shareholder letter last week that the banking industry’s issues are “not yet over” and might impact the financial services sector “for years to come.”

The likelihood of a recession has continued to grow in recent weeks, in part because of expectations that the crisis would result in stricter credit standards that will make it more difficult for individuals and companies to be granted loans and other forms of credit. Now as a result, banks will be encouraged to exercise more caution and make sure their loan-to-deposit ratio is more favorable. Clients in this current climate will undoubtedly also be eating more into their deposits as there is less lending available, which will tend to make matters worse and drive them to make spending and investment reductions as a result.

According to projections from Refinitiv I/B/E/S, EPS for the six largest U.S. banks is likely to drop by almost 10% from the previous year. In the meantime, according to Factset analysts, the anticipated earnings decrease for the overall S&P 500 is currently 6.8%. Which, if it comes to fruition, will be the greatest recorded fall by the index since Q2 2020.

With the first of the 2023 Q1 earnings due to be published this week, how will these major institutions fare after such a rocky first few months of the year?

JPMorgan Chase & Co (14th of April)

The US’s largest bank, JPMorgan Chase & Co, is the first to kick things off this week, after First Republic chose to postpone its report to later this month to the 24th April.

With a fortress balance sheet and the required investments in place, the bank was able to post solid profits in its previous quarter. They achieved $11.0 billion in net income, $34.5 billion in revenue, and an ROTCE (​​return on average tangible common shareholders’ equity) of 20%. Their strong profits growth, along with the successful implementation of the bank’s capital plan, enabled them to surpass their CET1 (Common Equity Tier 1) objective of 13% one quarter early, giving the flexibility to begin stock buybacks in the first quarter.

For the current quarter ending in March, the bank is anticipated to disclose a year-over-year increase in earnings again on the back of higher revenues.

Zacks Research suggests that the bank is anticipated to disclose quarterly earnings of $3.40 per share in its impending report, representing an increase of 29.3% year-over-year.

Revenues are anticipated to reach $35.37 billion, a 15.2% increase from the same period last year.

Wells Fargo & Co (14th of April)

Wells Fargo had a difficult finish to 2022, as net income fell by 50% to $2.86 billion, or 67 cents per share. According to the bank, the significant drop was caused in part by lower mortgage banking on fewer originations, and as a result of the legal, regulatory, and customer remediation operations.

Analysts have gotten more optimistic about Wells Fargo’s profits prospects in recent months. Zacks Investment Research reports that 9 analysts have collectively predicted an earnings per share of $1.15 for the quarter. In the same period a year ago, earnings per share were recorded as $0.88.

Citigroup (14th of April)

Due to weaker-than-anticipated macroeconomic conditions and slower loan growth in the fourth quarter, Citigroup saw its net income fall 21% to $2.5 billion from $3.2 billion in the prior year. The weakness was mitigated to some extent by the growth in revenue from higher interest rates and a decrease in costs. The bank at the time also reported an increase in provisions of 35% year over year, to $1.85 billion, to cover potential future credit losses.

Zacks Investment Research reports that 12 analysts have collectively predicted a quarterly EPS of $1.67. Earnings per share were $2.02 during the same period in the previous year.

PNC Financial (14th of April)

In comparison to profits of $3.68 per share a year earlier, PNC Financial Services reported quarterly earnings of $3.49 per share in the fourth quarter. A decrease in non-interest revenue and greater provisions were the main factors that impacted the results. Nonetheless, increased rates and loan growth, as well as a decrease in expenditures, helped to boost net interest income, which, in comparison to the same quarter in 2021, was $1.55 billion, up from $1.31 billion.

Zacks Investment Research reports that 9 analysts have collectively predicted an earnings per share of $3.61 for the current quarter. During the same period in the previous year, earnings per share were recorded as $3.29.

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