How are you feeling about the financials after this morning’s results from JPMorgan, Citi, and Wells?
If your answer is “not so great,” you are not alone:
If your answer is “I have not idea,” then allow a shit load of analysts to give you the quick and (mostly) dirty via the following handy summary from Bloomberg:
JPMORGAN
Morgan Stanley (Betsy Graseck)
- Solid beat on corporate, investment banking rev.; notes stronger fees offset by lower NII
- Read across:
- Positive for trust banks with AUC, AUM beating Morgan Stanley ests.; positive for super- regional bank loan growth as JPM’s commercial banking loan growth accelerated, with average loans up 2.6% q/q vs. prior quarter’s +0.9%.; marginally positive for FICC, which was down less than expected (-19% y/y vs est -22%) and negative for equities (-1% vs est. +5%)
- Negative for cards on credit (NCO +7bps q/q est. -14bps); positive on stronger spending; neutral on loan growth (+7.6% y/y vs est. +7.9%)
- Negative for mortgage, with volumes up 7% q/q vs est. +16%
Goldman (Richard Ramsden)
- In-line quarter on NII, capital markets
- Core EPS (excluding securities gains, legal expenses, one-time tax FDIC settlement related to WaMu, and normalizing the tax rate) mostly in line at $1.66 vs consensus est. of $1.65
- NIM was slightly weaker at 2.31% vs consensus est. 2.37%, partially driven by weaker loan yields (due to mix shift toward lower-yielding assets, such as mortgages and commercial term loans) and 5bps increase in funding costs
UBS (Saul Martinez)
- Mixed first take, with positives including continued good average core loan growth, average deposits up 10% y/y in CCB, rising credit card sales volume, uptick in card rev. rate to 10.5% from 10.2% q/q, momentum in commercial banking
- Negatives include: NII only rose $154m q/q vs $400m guided to on 1Q call; credit card charge-offs 3.01% vs 2.94% q/q, 2.70% y/y; markets revenue (FICC and equities) down 14% y/y (though this was expected)
- Buy, PT $104
Nomura Instinet (Steven Chubak)
- Expected shares to be under pressure due to more measured outlook commentary
- 2Q’s in-line trading results may prompt cuts to 2H consensus trading forecasts, which appear “somewhat lofty”
- Read-Across: CIB results reflected strength in M&A, a plus for GS, MS; and DCM is a plus for BAC; trading strength in PB/Derivatives is positive for GS, MS; weakness in commodities negative for GS and rates/credit negative for C, BAC
- Neutral, PT $86
Baird (David George)
- Better-than-est. noninterest income, lower credit costs offset weaker NII
- Cut in 2017 NII view to $4b+ y/y from ~$4.5b may reflect change in forward curve
- Neutral, PT $82
KBW (Brian Kleinhanzl)
- Results beat KBW ests. on stronger noninterest revenue due to better investment banking, asset management fees, higher card and lending fees in CCB
- NIM trailed KBW est., falling q/q, despite deposit beta that was in line with KBW est.
- Loan growth, credit outlook beat
- Market perform, PT $94
CITIGROUP
Nomura Instinet (Steven Chubak)
- Results “stack up a bit better” than JPM’s, with more resilient NII, stronger FICC and I-banking fees, lower provision; while expenses were slightly above consensus, efficiency ratio was in line with C’s 59% guidance
- Sees “further runway” for stock and consensus to move higher
- Rates C buy, PT $74
Evercore ISI (Glenn Schorr)
- Results were “decent,” as modest beat was driven by OK revenue, loan and deposit growth, strong card, investment banking and private bank results, good efficiency and further capital return
- C should be able to increase return on/return of capital over time, as it’s clear Cards/Mexico investments are producing, and there’s larger capital return approval; that said, 6.8% ROE and 9.2% ROTCE are “a ways away from the company’s goals and what’s required to drive a premium valuation”
- With large capital and SLR ratios, and shares now a “drop above tangible,” capital return will “obviously continue to be a big part of the Citi story” given importance of closing return/valuation gap vs peers
- Rates C in line, PT $63
WELLS FARGO
Evercore ISI (John Pancari)
- Tough quarter, marked by weaker fees (deposit, mortgage banking) and lower loan balances, albeit with support from credit
- Core EPS 97c vs Evercore ISI est. $1, with downside vs est. driven by weaker-than-est. fee income
- Loan trends weaker than modeled, driven by declines in CRE loans (notes WFC cited a more focused credit discipline), lower auto balances
- Outperform, PT $62
UBS (Saul Martinez)
- EPS beat driven by tax benefit related to the sale of insurance services business and a lower-than-est. credit provision; fee rev. softer than expected (largely driven by drop in mortgage rev.), partially offset by lower-than-est. expenses
- Still facing revenue headwinds as average loans declined 0.7% q/q, driven by 4% drop in auto loans, further Heloc run-off; notes auto loans expected to decline further over rest of the year
- Notes efficiency ratio of 61.1% is still at top end of the full year target range of 60%-61%; hard to see dramatic improvement in efficiency if topline environment remains difficult
- Neutral, PT $59
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The thing you have to keep in mind about all of this is that it comes at a time when things should have been looking up for the financials.
Indeed, this was supposed to be a space that was something of a “sure bet” after Trump got elected. Looser regulations, growth-friendly policies, an inner circle full of bankers, etc. etc. What was there not to like?
“After Election Day, the bull case on U.S. bank stocks was simple – Donald Trump was taking office, and he’d usher in tax cuts and government spending that would spur a reflationary surge to the benefit of lenders,” Bloomberg wrote this morning, before noting that “eight months later, very little of that has happened.”
But this morning’s post-earnings slide notwithstanding, that hasn’t generally stopped investors from sticking around and hoping for the best. Of course if you look at the curve, it’s pretty clear that at this point, “hope” is all there is left (a recent – and likely fleeting – bout of steepening notwithstanding):
Simply put: in the absence of something concrete on policy, this is a fool’s errand at this juncture.
“Something tangible better happen soon or those bulls will start turning to bears,” Compass Point’s Charles Peabody, told Bloomberg. “Right now you’re making money purely on multiple expansion related to policy and I suspect it may be a bridge too far,” he went on to warn.
Yes, “a bridge too far.”
And I don’t know about you, but from where I’m sitting, the incoming econ data doesn’t seem to be screaming “reflation imminent“.
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