Don’t bank on the banks

[sakura]

 

As earnings season edges closer, investors are looking over the banking sector’s biggest names to assess their potential. 

JPMorgan (JPM) and Citigroup (C) release their figures first, followed by Wells Fargo (WFC) and Bank of America (BAC) then Goldman Sachs (GS) and Morgan Stanley (MS). 

US banks have benefited recently from a perceived likelihood of interest rate increases from the US Federal Reserve. However, much of these banks’ future performance will depend on the tax cuts that US President Donald Trump proposed recently, and the ability of his administration to get them through Congress. 

If passed, net income of the big six banks could rise $6.4 billion with Wells Fargo, Bank of America and JPMorgan the biggest beneficiaries, according to a recent Bloomberg report. 

However, Trump’s administration has been frustrated by Congress’ unwillingness to back the president on a number of policies that he has wanted to pass since coming into power. 

And Morgan Stanley’s chief US equity strategist, Mike Wilson, claims that S&P 500 companies will not hit their 2018 estimates without them. 

JPMorgan chief executive Jamie Dimon predicted a 20% year-on-year decline in the bank’s trading revenues. However, analysts are expecting JPMorgan to report EPS (earnings per share) of $1.66, an increase from the $1.58 recorded in the same period last year despite revenues falling year-on-year to reach $25.3bn. 

Citigroup’s chief financial officer offered a similar outlook revealing that total market revenues are down 15% in the third quarter. However, Citigroup EPS are forecast to be $1.30, six cents higher than the same quarter earnings posted last year. 

Wells Fargo’s problems are self-inflicted as they are struggling to shrug off the battering their reputation took as a result of numerous recent scandals. Wells Fargo may be legendary investor Warren Buffet’s favourite stock but earnings are expected to be less than 1% up on last year. 

Bank of America warned earlier this month that trading revenue in the third quarter is expected to be down 20% and that this is may have a negative effect on its quarterly earnings report. 

Goldman Sachs produced record revenues in the first three months of the year and maintained a strong performance throughout the first six months. Goldman Sachs co-president Harvey Schwartz is predicting similar figures for the third quarter. Despite this the bank seem to have missed out on the recent big bank rally with its share price up just 1%. The EPS forecast is $4.25 down on last year’s $4.88. 

Morgan Stanley’s share price has increased more than 16% this year. Analysts forecast EPS of $0.84, up exactly $0.04 from 2014’s $0.8 EPS. 

For more advice on the banking sector and how to capitalise on share price movements talk to the experts at FXB Trading. 

 

For more detail : Don’t bank on the banks

[Ian Billcliff]

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Edited December 27, 2017 by Willem Hesselink

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