Third-quarter results were in focus for banking stocks in the last five trading days. Despite the tough industry backdrop and huge litigation settlements, most of the banks succeeded in outpacing the Zacks Consensus Estimate for earnings with their cost-control measures and better-than-expected top-line growth. However, higher legal costs and elevated provisions were reflected in the share price movement.
Earnings reports for most of the banks highlight restructuring initiatives undertaken during the quarter.
(Read last week’s developments: Bank Stock Roundup for Oct 10, 2014)
Recap of the Week’s Most Important Earnings:
1. JPMorgan Chase & Company (JPM) came out with earnings of $1.62 per share, beating the Zacks Consensus Estimate of $1.39. The number also compares favorably with $1.42 earned in the year-ago quarter. Earnings exclude the 26 cents per share impact related to the after-tax Firmwide legal expense. Considering this significant one-time item, the company has earned $1.36 per share.
Legal charges aside (though significantly lower year over year), there were no major dampeners during the quarter. Top-line strength was enough to mitigate the majority of negatives. Further, the expense line showed significant year-over-year improvement on the back of active cost containment efforts. However, provisions did not work in favor. (Read more: JPMorgan's Q3 Earnings Beat: What Contributed the Most?)
2. Putting an end to the concerns surrounding Bank of America Corp.’s (BAC) Q3 earnings following its huge settlement with the DoJ and other government entities, the company came out with a profit of $168 million. Adjusted earnings per share came in at 42 cents, compared with the Zacks Consensus Estimate of a loss of 9 cents. This also compares favorably with 28 cents per share earned in the year-ago quarter.
Results exclude 43 cents a share (after tax) negative impact related to the previously mentioned settlement. Considering this one-time item, the company has reported a loss of one cent per share. A well-controlled expense line was the key driver of this impressive performance, before considering litigation expenses. A better-than-expected top line, though down year over year, also lent support. However, higher provision for credit losses was on the downside. (Read more: BofA Pays Huge Charges: How Did It Manage Profitability?)
3. Continuing on a positive note, Citigroup Inc. (C) reported yet another impressive quarter. Adjusted earnings per share for third-quarter 2014 came in at $1.15, outpacing the Zacks Consensus Estimate of $1.12. Further, earnings compared favorably with the year-ago figure of $1.02 per share. Including the impact of credit valuation adjustment (CVA) and debt valuation adjustment (DVA), Citigroup reported net income of $3.4 billion or $1.07 per share in the third quarter compared with $3.2 billion or $1.00 per share in the prior-year quarter. (Read more: Citigroup Beats on Q3 Earnings, to Exit 11 Global Markets)
4. Driven by top-line growth, Wells Fargo & Company (WFC) earned $1.02 per share in third-quarter 2014, surpassing 99 cents earned in the year-ago quarter. However, the reported figure was in line with the Zacks Consensus Estimate. Total loans and deposits grew and the company recorded higher revenues. Moreover, a strong capital position and returns on assets and equity acted as the positives. Wells Fargo also reported $300 million in reserve release (pre-tax), attributable to its improved credit performance. However, the company experienced a slight rise in non-interest expenses and higher provisions. (Read more: Wells Fargo (WFC) Posts Solid Q3 Earnings, Revenues Soar Y/Y)
5. The PNC Financial Services Group, Inc. (PNC) reported another impressive quarter with an earnings surprise of 4.7%, primarily attributable to the company’s cost-containment measures. The company’s third-quarter 2014 earnings per share of $1.79 outpaced the Zacks Consensus Estimate of $1.71. Moreover, this compared favorably with $1.77 earned in the prior-year quarter.
Better-than-expected results were primarily driven by a decrease in both non-interest expenses and provision for credit losses. Further, an enhanced credit quality and healthy capital ratios were the positives. However, lower top line was a concern. (Read more: Cost Control Drives PNC Financial's Impressive Q3 Earnings)
Price Performance
Despite the forerunners reporting decent third-quarter results, banking stocks depicted a downward trend. Primarily, the concerns over the impact of the tough industry backdrop in the upcoming results led bank stocks to end this week on a pessimistic note.
|
Company |
Last Week |
Last 6 months |
|
JPM |
-5.9% |
1.0% |
|
BAC |
-2.4% |
0.1% |
|
WFC |
-5.0% |
-0.6% |
|
C |
-0.7% |
3.3% |
|
COF |
-2.3% |
5.3% |
|
USB |
-2.4% |
-2.3% |
|
PNC |
-3.5% |
-5.5% |
In the last five trading sessions, JPMorgan and Wells Fargo were the major losers, with their share prices declining 5.9% and 5.0%, respectively. Further, PNC Financial showed a decline of 3.5%.
Over the last 6 months, Capital One Financial Corp. (COF) and Citigroup were the top performers, with their shares advancing 5.3% and 3.3%, respectively. However, PNC Financial and U.S. Bancorp (USB) witnessed a 5.5% and 2.3% price decline, respectively, over the same time frame.
What Next in the Banking Universe?
Regions Financial Corporation (RF), with an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell), is scheduled to report third-quarter 2014 earnings on Oct 21, while U.S. Bancorp, with an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell), is slated to report on Oct 22.
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