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Citigroup $C along with JPMorgan Chase $JPM, America's largest bank, Goldman Sachs $GS, PNC Financial $PNC and Wells Fargo $WFC kick off the banking sector's Q219 earnings season on Monday before the market opens with expectations for lower earnings on a flatter yield curve.

john pierpont morgan

The banks lower earnings expectations have followed the flatter yield curve, where the narrowing spread between short-term interest rates and long-term rates which lowers the margin banks make in the fixed inteest and lending markets. Trading volumes fell in the quarter as many investors stayed on the sidelines due to volatility related to the U.S.-China trade war. We also had a chaotic few months with Fed stress test result, US implementing tariffs on China and China's response seeing trade war fears unravelling markets investors are hopeful a focus on earnings fundamentals will comfort equity markets. Overall, analysts and banks have been keeping expectations low, with the big names Citi, JPMorgan, and Morgan Stanley warning of lower trading, investment-banking, and capital markets' revenue.

From that analysts have adjusted their estimates. They expect Q2 EPS growth of 11% for the S&P 500 Banks Index, down from 14.4% as of Jan. 1, and revenue growth of 1.6% vs. 3.4% citing the average of estimates compiled by Refinitiv. The earnings come after a euphoric week of all time highs in the US indices ater a strong June jobs report and a market running without fear.

With the obsession on the Fed lowering rates t he outlook for interest rates will be more important than Q2 earnings.

Banks have also benefited from the booming IPO market during the second quarter in particular, Uber (UBER), Lyft, Pinterest (PINS) and Chewy were among the highlights. The IPO rage helped lift stock underwriting fees by almost 40% from a year ago, according to Refinitiv. Goldman Sachs, Morgan Stanley, JPMorgan Chase, BofA and Citi were the top five equity underwriters.

Bank Earnings schedule:

Citigroup Consensus Expectations

Expectations are for an EPS of $1.80, on $18.52 billion in revenue

  • Citigroup is one of the least rate sensitive banks of the majors has said a 25-basis point rate shift would cut revenue by $50 million per quarter.
  • 2Q EPS estimate $1.80 (range $1.70 to $1.88)
  • 2Q adjusted revenue estimate $18.52 billion (range $18.01 billion to $19 billion)
  • 4Q equities trading revenue estimate $830.7 million (Bloomberg MODL, 7 ests.)
  • FICC $3.01 billion (7 ests.)
  • I-banking revenue est. $1.26 billion
  • 2Q Preview Call 10am 866 516-9582 password: 1879538

$C Last Quarter Highlights

  • The bank repurchased 66 million shares totaling about $4.06 billion in the first quarter and returned $1.08 billion to shareholders through dividends.
  • Equity-trading revenue saw a 24% decline in the first quarter due to lower market volumes and client financing balances
  • Global Consumer Banking revenue of $8.45B, essentially unchanged Q/Q and Y/Y.
  • Institutional Clients Group revenue of $9.69B, up 8% Q/Q, down 2% Y/Y.
  • Corporate/Other revenue of $431M, down 8% Q/Q and down 27% Y/Y.
  • Q1 provision for credit losses and for benefits and claims of $1.98B vs. $1.93B in Q4 and $1.86B in Q1 2018.
  • Common equity tier 1 capital ratio of 11.9% vs. 11.86% in Q4 and 12.05% in Q1 2018.
  • Tangible book value per share of $65.55 at March 31, 2019 vs. $63.79 at Dec. 31, 2018.

JP Morgan Consensus Expectations

Epectations are for EPS of 2.50 on revenue of $28.88 billion

  • 2Q adjusted EPS estimate $2.50 (range $2.40 to $2.56)
  • 2Q adjusted revenue estimate $28.88 billion (range $28.28 billion to $29.61 billion)
  • 4Q equities trading revenue estimate $1.82 billion (Bloomberg MODL, 7 ests.)
  • FICC $3.33 billion (7 ests.)
  • I-banking revenue est. $1.82 billion
  • 2Q Preview Call 8:30am (New York time), (866) 541-2724

JPMorgan's profit margin is well above average at 30.6% as is the operating margin of 39.3%. However the return on equity is average at 12.5% and the return on assets is low at 1.23%. The company earned $2.22 in the second quarter of 2018, this would be growth in earnings by 12.6% on a year over year basis. The revenue forecast would mean growth of 1.8%.

JPM stock has outperformed other big banks over the past year, JPMorgan Chase is up 10.5%, versus a 8.14% return of the S&P The stock has moved up around 27% since the December low&and slightly above Citi and Bank of America. Looking at just 2019, the S&P bank index has risen 17.5% year-to-date while the S&P 500 has risen 19.7%. Wells Fargo has faced many obstacles, including not having a CEO, and has lagged the other banks and the overall market over the last year.

Credit Suisse issued an upbeat note last year on $JPM last quarter saying "JPMorgan is most representative of the value inherent in the universal banking model. Look to JPMorgan for best-in-class execution-sustainable organic revenue growth and market share gains (leveraging the benefits of its complete, scaled and well-integrated product set), a willingness to drive down unit operating costs (capacity for investment to drive incremental growth; a virtuous circle) and an ability to optimize capital; this should sustain better-than-average earnings growth and returns on equity."

$JPM Last Quarter Highlights

  • Consumer lending division profit rose 19 percent to $3.96 billion as revenue climbed 9 percent to $13.8 billion. The division grew the profit margin on deposits and grew loans across credit card and auto units.
  • Provision for credit losses stayed flat from a year earlier at $1.3 billion
  • Q1 trading revenue dropped 17 percent to $5.5 billion.
  • Excluding the impact of a year-earlier accounting change, bond trading declined 8 percent and stock trading revenue dropped 13 percent.
  • Banking revenue rose 8 percent to $3.2 billion on higher debt underwriting and advisory fees. The overall division’s profit of $3.25 billion was 18 percent lower than a year earlier.
  • J.P. Morgan’s asset management division profit dropped 14 percent to $661 million on lower market levels and brokerage activity in the quarter.
  • JPM commercial bank posted profit of $1.05 billion, 3 percent higher than a year earlier.

JPMorgan Chase CEO Jamie Dimon 

Note: JPM CEO Jamie Dimon is also chairman of the Business Roundtable for the Trump administration. 

 JPMorgan Q2 Earnings Preview

Goldman Sachs Consensus Expectations

Expectations are for an EPS of $1.57, on $18.53 billion in revenue

  • 2Q adjusted EPS estimate $4.93 (range $4.38 to $5.52)
  • 2Q net revenue estimate $8.90 billion (range $8.62 billion to $9.36 billion)
  • 4Q equities trading revenue estimate $1.84 billion (Bloomberg MODL, 8 ests.)
  • FICC $1.60 billion (8 ests.)
  • I-banking revenue est. $1.91 billion
  • 2Q Preview Call 9:30am 1-888-281-7154

$GS Last Quarter Highlights

  • GS announced $3.26 billion in pay and benefits for the quarter, 20% less than a year ago and well below the $3.58 billion estimate.
  • The firm also trimmed headcount by 2% from the fourth quarter.
  • Its institutional client services trading division posted $3.61 billion in revenue for the quarter, an 18 percent decline from a year earlier.
  • Revenues from fixed income and equities trading came in at $1.84 billion and $1.77 billion.
  • investment banking division revenue of $1.81 billion, roughly unchanged from a year earlier
  • Advisory revenue jumped 51% to $887 million on robust mergers and acquisitions activity.
  • The investing and lending segment posted $1.84 billion in revenue, a 14 percent decline driven by “significantly lower net gains” from stakes in private equities and debt holdings.
  • Goldman’s smallest division, investment management revenue dropped by 12% to $1.56 billion, below analysts’ $1.71 billion estimate, on “significantly lower incentive fees and lower transaction revenues” amid tough markets.
  • The firm’s provision for credit losses climbed to $224 million in the quarter, roughly unchanged from the previous period but surging from the first quarter of 2018, where it was $44 million, as Goldman expanded its retailing lending operations.

Goldman Sachs Q2 Earnings Preview

PNC Financial Consensus Expectations

Expectations are for EPS to $2.82, on revenues of $4.41 billion.

  • Zacks Investment Research, based on 10 analysts' forecasts, has consensus EPS forecast for the quarter of $2.82.
  • The reported EPS for the same quarter last year was $2.72.
  • Which represents a year-over-year change of +3.7%.
  • Revenues are expected to be $4.41 billion, up 2% from the year-ago quarter.

$PNC Last Quarter Highlights

  • Net interest income grew 5% year-over-year to $2.48 billion
  • Non-interest income increased 3%
  • Average loans and average deposits both increased 3% versus the year-ago quarter.
  • Provision for credit losses more than doubled to $189 million.
  • The lender’s expenses rose 2 percent to $2.58 billion.
  • PNC Financial loan portfolio grew about 5 percent to about $232 billio
  • Commercial lending accounting for nearly 68 percent of total loans.

PNC Q2  Earnings Preview

Wells Fargo Consensus Expectations

Expectations are for EPS to $1.16, on revenue of $20.94 billion.

  • The Fed took action in February to prohibit the bank from growing until it "sufficiently improves its governance and controls." 
  • 2Q EPS estimate $1.16 (range $1.08 to $1.27)
  • 2Q net interest margin estimate 2.86% (range 2.81% to 2.9%) 
  • 2Q Preview Call 10am 866-872-5161

$WFC Last Quarter Highlights

  • Wells Fargo  credit-card transactions totaled $18.3 billion in the quarter, up 5% from a year earlier
  • Debit-card purchases increased by 6% to $86.6 billion.
  • Auto loans surged 24% to $5.4 billion. 
  • WFC it returned $6 billion to shareholders in the quarter through dividend payments and buybacks.
  • It increased its quarterly dividend to 45 cents per share, up from 43 cents in the fourth quarter of 2018.
  • Wells’ deposits fell less than expected, totaling $1.3 trillion.
  • Loans came in at $950.1 billion, roughly in line with expectations.
  • Wells Fargo’s nonperforming assets totaled $7.3 billion, well above a $6.67 billion estimate from StreetAccount.
  • The bank’s efficiency ratio was also higher than forecast, coming in at 64.4% for the quarter. A higher efficiency ratio indicates a bank is spending more money than it is making.

Wells Fargo Q2 Earnings Preview

Bank of America Consensus Expectations

Expectations are for EPS to $0.71, on revenues of $23.16 billion.

  • 2Q adjusted EPS estimate 71c (range 67c to 75c)
  • 2Q revenue net of interest expense estimate $23.16 billion (range $22.78 billion to $23.72 billion)
  • 4Q equities trading revenue estimate $1.21 billion (Bloomberg MODL, 7 ests.)
  • FICC $2,12 billion (7 ests.)
  • I-banking revenue est. $1.41 billion
  • 2Q net interest yield estimate 2.46% (range 2.41% to 2.5%)
  • 2Q Preview Call 8:30am 877-200-4456 password: 79795

$BAC Last Quarter Highlights

  • BA’s net interest yield, a key metric of profitability for a bank’s core lending activities, rose 9 basis points to 2.51%
  • Loans across the firm’s consumer and commercial businesses rose 3%
  • Deposits rose 5% to $1.4 trillion.
  • Consumer lending business  25% increase in profit to $3.2 billion.with revenue in the business 7% to $9.6 billion while reducing costs by almost $200 million.
  • Global markets profit slumped 26% to $1 billion.
  • Revenue dropped 13% on weak trading results and lower investment banking fees.
  • Equities trading revenue fell 22%,
  • Fixed income declined 8%.
  • Global banking business posted a 2% profit increase to $2 billion.
  • Wealth management profit rose 14% to $1 billion.

 

Bank of America Q2 Earnings Preview

Morgan Stanley Consensus Expectations

Expectations are for EPS to $1.15 on revenues of $10.03 billion.

  • 2Q EPS estimate $1.15 (range $1.03 to $1.29)
  • 2Q net revenue estimate $10.03 billion (range $9.71 billion to $10.66 billion)
  • 4Q equities trading revenue estimate $2.30 billion (Bloomberg MODL, 6 ests.)
  • FICC $1.35 billion (6 ests.)
  • I-banking revenue est. $1.56 billion
  • 2Q Preview Call 8:30am 877-895-9527 password: 8194229

$MS Last Quarter Highlights

  • $1.71 billion in bond trading revenue, $200 million more than analysts had expected, as gains in credit trading helped offset weak government bond and currencies results.
  • Equities trading was $2.02 billion in revenue, just under estimates.
  • Together a 15% decline in trading revenue.
  • Investment banking revenue dropped 24% to $1.15 billion on lower fees from mergers advice and stock and bond underwriting.
  • Morgan Stanley’s wealth management division had $4.39 billion in revenue, exceeding the estimate by $200 million.
  • Had higher interest income through more lending to its wealthy clients.
  • In its smallest division, investment management, Morgan Stanley produced $804 million in revenue, about $115 million more than analysts had expected.

Morgan Stanley Q2 Earnings Preview

Source: JPM, WFC, PNC, C. GS, BAC, MS, Bloomberg, Zacks

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