Bank earnings are seen as the first real test for the Trump rally as investors are looking forward to what they hope will be higher margins and a more friendly regulatory regime.
XLF since the election:
According to Goldman, the move higher post-election represents investors pricing in a rosier environment than consensus reflects. The bank lists three factors that would lead to a “blue sky” earnings scenario:
- Higher core earnings — this assumption includes two rate hikes over and above our forecasts to a Fed Funds level of approximately 215bps (roughly reflecting the Fed dot plot), a normalization of credit losses and a step up in capital markets activity and would lead to 8% upside to our current (2018E) estimates.
- Corporate tax reform — a 10pp reduction of the US corporate tax rate to 25% could result in an additional 13% upside to current estimates, and 21% to our estimate for “higher core earnings”.
- Finally, the deployment and optimization of capital levels could result in 13% in additional upside.
Here’s a sector snapshot that breaks down the cumulative impact those three factors would have on the bottom line if realized:
So that’s what we’re shooting for, long-term. Below, find Bloomberg’s summaries of this morning’s Q4 results.
JPMorgan 4Q ex-CVA, tax benefit, legal expense $1.62, est. $1.43; 4Q FICC sales, trading rev. $3.37b vs est. $3.26b; equities sales, trading rev. $1.15b vs est. $1.29b; investment banking rev. $1.49b vs est. $1.59b.
- Shares up ~0.4% pre-mkt
- “U.S. economy may be building momentum”: CEO Jamie Dimon
- “Opportunity for good, rational and thoughtful policy decisions to be implemented, which would spur growth, create jobs for Americans across the income spectrum and help communities”; JPM well-positioned “to play our part”
- Had double digit growth in deposit, core loan balances, with record credit card sales volume, continued momentum from 3Q in CIB, with strong markets results “across products”
- Grew market share in “virtually all” businesses, “showed expense discipline while continuing to invest for the future”
- Outlook (slides page 10):
- Sees 1Q NII up “modestly” q/q
- Sees 1Q consumer, community banking expense up $150m q/q
- Sees 1Q commercial banking expense $775m
- Sees 1Q asset mgmt rev. slightly <$3b
- Average core loans up 3% q/q, 12% y/y
- In Consumer, provision for credit losses $949m, down $89m, driven by net reserve release, largely offset by higher card net charge-offs
- Includes $425m mortgage banking release, $25m release in student loan portfolio
- Partially offset by build of $200m, including $150m in card, $50m in business banking, driven by loan growth
- Mortgage banking net rev. $1.69b vs $1.87b q/q
- Card, commerce solutions, auto net rev. $4.56b vs $4.74b q/q
- $2.1b of net shr repurchases
Bank of America:
BofA shares up 0.5% pre-market after reporting 4Q adj. EPS 40c vs est. 38c, FICC trading rev. ex-DVA $1.96b vs est. $2.12b, equities trading rev. ex-DVA $948m, est. $943.7m; CFO sees higher NII in 1Q.
- FTE Revenue ex DVA $20.33b vs $20.76b est.
- BAC is “lending more and seeing historically low charge-offs”; rev. was up “modestly,” but EPS grew as BAC continued to manage expenses, create operating leverage: : CEO Brian Moynihan
- “Strong leadership positions” in businesses against “backdrop” of rising rates means BAC “well-positioned to continue to grow and deliver for our shareholders in 2017”
- “Strong” client activity, good expense discipline created “solid” operating leverage in quarter; though recent rise in interest rates “came too late” to impact 4Q results, BAC expects “significant ” increase in net interest income in 1Q: CFO Paul Donofrio
- Still focused on delivering value to shareholders “as evidenced by” announcement to increase planned repurchases for 1H from $2.5b to $4.3b
- Total credit/debit card spending up 6%
- Efficiency ratio 53% vs 58% q/q
- Overall credit quality “remain strong,” with improvements in consumer and commercial portfolios; net charge-offs $880m vs $888m q/q
- Provision for credit losses down $76m q/q to $774m, driven by improved asset quality in commercial portfolio, particularly energy
- Net reserve release $106m vs $38m q/q, driven by better consumer real estate, energy exposures
- Reservable criticized commercial exposures $16.3b vs $16.9b q/q
- Total client balances up 10% to $1.0t
- Total mortgage production up 29% q/q to $21.9b
- New U.S. card accounts 1.13m vs 1.32m q/q
- 21.6 million mobile banking active users, up 16%; 19% of deposit transactions completed via mobile devices
- Global wealth, investment mgmt rev. down $101m to $4.4b
Wells Fargo 4Q includes net hedge ineffectiveness accounting impact of 7c.
- 4Q provision for credit losses $805m, est. $944.1m
- 4Q net charge-offs $905m, est. $881.6m
- 4Q net rev. $22.51b vs est. $22.45b
- 4Q net interest margin 2.87%, est. 2.81%
- 4Q ROE 10.9%; return on assets 1.08%
- Total average loans of $964.1b; total average deposits of $1.3t