Over the last five trading days, Q1 earnings releases have taken the center stage for the banking industry. Performance of banks during the past quarter remained quite impressive with legal charges not majorly hampering their financials. Also, several measures and initiatives undertaken to improve efficiency and save expenses got reflected in the results.
Further, with the economy gaining strength, some pickup in consumer and commercial loan demand was witnessed. Client activity improved, supported by renewed volatility in global financial markets.
Notwithstanding these positives, the overall interest rate backdrop remains quite challenging for banks, adversely impacting their net interest margins. This led to strain on net interest income.
(Read the last Bank Stock Roundup for Apr 10, 2015)
Recap of the Week’s Most Important Developments:
1. As speculated by the market, JPMorgan Chase & Co. JPM proved its mettle in the opening quarter of 2015. The company was able to turn the tables on others with earnings of $1.45 per share beating the Zacks Consensus Estimate of $1.39. The company’s operating expenses were down substantially, reflecting the success of its cost-saving initiatives. While provision for credit losses did not work in its favor, an improvement in revenue was sufficient to cover the drawback (read more: JPMorgan Sets Tone with Solid Q1 Earnings Beat).
2. Riding on higher revenues, Wells Fargo & Company WFC delivered a positive earnings surprise of 6% in first-quarter 2015. The company reported earnings of $1.04 per share, outpacing the Zacks Consensus Estimate of 98 cents. However, higher expenses and increased provision for loan losses slightly dampened the results (read more: Wells Fargo Q1 Earnings Beat Estimates, Profits Down).
3. Driven by lower expenses and absence of substantial legal costs, Bank of America Corporation’s BAC first-quarter 2015 results saw year-over-year improvement. Earnings of 27 cents per share were substantially up from a loss of 5 cents in the prior-year quarter. However, the bottom line fell short of the Zacks Consensus Estimate of 29 cents.
BofA’s results benefited from a well-controlled expense line and lower provision for credit losses. Nevertheless, lower revenues, indicating continued pressure on net interest income, along with lower investment banking income and trading income, was the undermining factor (read more: BofA Brings Y/Y Earnings Growth, Revenues Miss).
4. U.S. Bancorp USB reported first-quarter 2015 earnings per share of 76 cents, in line with the Zacks Consensus Estimate. Results benefited from higher revenues, a rise in average loans and deposit balances, and a decline in provisions. However, these positives were offset by an increase in non-interest expenses (read more: U.S. Bancorp Posts In-Line Q1 Earnings, Revenues Up).
5. Citigroup Inc. C delivered a positive earnings surprise of 9.4% in first-quarter 2015, with its business-streamlining efforts bearing fruits. Adjusted earnings per share of $1.52 outpaced the Zacks Consensus Estimate of $1.39. Results were aided by reduced expenses, partially offset by lower revenues (read more: Citigroup Q1 Earnings Jumps on Lower Expenses).
Price Performance
Overall, the performance of banking stocks remained skewed toward optimistic side, with better-than-expects earnings performance. Results of major banks reflected their efforts to confront tough industry backdrop. This cheered investors, as a result of which banking stocks showed upward price movements.
|
Company |
Last Week |
6 months |
|
JPM |
3.4% |
17.4% |
|
BAC |
0.4% |
-1.2% |
|
WFC |
0.9% |
15.4% |
|
C |
3.0% |
8.6% |
|
COF |
3.0% |
6.5% |
|
USB |
-1.9% |
11.0% |
|
PNC |
-1.3% |
17.6% |
In the last five trading sessions, JPMorgan was the top gainer with 3.4% rise in its shares, followed by Citigroup and Capital One Financial Corp. COF, both rising 3%. However, shares of U.S. Bancorp and The PNC Financial Services Group, Inc. declined 1.9% and 1.3%, respectively.
Over the last 6 months, PNC Financial and JPMorgan were the top performers, with their shares advancing 17.6% and 17.4%, respectively. On the other hand, BofA declined 1.2%.
What's Next in the Banking Universe?
Bank earnings will continue to rule headlines next week as well. Some of the major releases include SunTrust Banks, Inc. on Apr 20, Regions Financial Corporation RF and Fifth Third Bancorp on Apr 21, The Bank of New York Mellon Corporation on Apr 22, and BB&T Corporation and Capital One on Apr 23.
Hence, similar to the past week, the next week too, will be a busy one for the industry.
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