Three earnings reports from major American banks are starting off earnings season this Friday. Traders of CFDs on bank stocks and more are looking ahead to releases pre-market on Friday from Citigroup (C.US), JP Morgan (JPM.US) and Wells Fargo (WFC.US). These are some of the biggest banks’ earnings and might set the tone for financial stocks in Q4 2018.
Here we’re taking a brief look at the earnings per share predicted for these symbols and what might be in store for the three next week and into the end of the month.
The biggest and highest priced of these shares, JPM is also the only one to have recovered fairly conclusively from February’s dramatic slump in many American shares.
JPM closed yesterday in New York at $114.82, more-or-less equal to levels at the start of 2018. JP Morgan’s stock though did make significant gains around the middle of the year, especially in July.
The significant news for JP Morgan unique among the other banks releasing on Friday came out from the Wall Street Journal yesterday: it was reported that the bank plans to lay off about 2% of its consumer home lending division. The bank has blamed the rising base rate in the USA combined with fewer homes for sale for this.
While a slightly less rosy outlook for consumer loans is something of a negative factor for JP Morgan, we’re with analysts like Cramer who don’t expect this to have a significant impact in itself on the stock.
The second bank reporting earnings on Friday is Wells Fargo, the middle of the group in terms of market cap at around $258 billion. Unlike JPM, WFC hasn’t recovered at all on the whole from losses towards the start of this year.
Although an upward movement for the stock appeared to be gaining headway in July around the same time, this gave way to sharp losses in September, with only a small reversal of these now. WFC last closed at $53.17.
The final bank releasing data on Friday is also the smallest in market cap: Citigroup has overall been a better performer price-wise than Wells Fargo over the past few months, but it has been marked by higher volatility than either of the other two.
Citigroup’s shares closed at $72.09 last night, having made considerable gains overall from lows in early June but still some way off highs of around $81 in January 2018.
The ongoing news that’s been affecting Citigroup somewhat negatively recently is the landmark cartel case against the bank’s Australian unit. Criminal charges were filed against Citigroup and Deutsche Bank in June accusing the banks of restricting the supply of ANZ’s shares in 2015.
Much like JP Morgan, we don’t think this is going to have a significant negative affect on Citigroup’s stock, but it is a factor to be aware of as the court case continues.
With decent growth in EPS predicted for each of the three banks reporting on Friday, it’s quite possible that their stocks could be spurred upward into next week.
On the other hand, traders shouldn’t forget that pressure remains on net interest margins at banks in the USA. While these have slowly improved from early 2015’s record lows as the Fed has continued to hike rates, they remained below 3% for all three of these banks into Q1 2018 with JP Morgan coming in bottom here.
While loan data recently haven’t been terrible for the big banks, we could still have seen better results. A factor here is certainly rising rates which make it more expensive outside the banks’ control for consumers to borrow. Whether these data are set to improve as predicted by Jeffries’ analysts among others remains to be seen.
The bottom line in terms of EPS only is that both JP Morgan and Citigroup have beaten both EPS and revenue estimates for nearly the past three years. Wells Fargo though has missed this for the whole of the past year. Whether similar results are in store on Friday afternoon remains to be seen, but whatever happens there’s likely to be movement for the big banks’ stocks.
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