Wells Fargo (NYSE: WFC) kicked off fourth quarter earnings with the other major money center banks along with the world’s largest investment management company Friday. Q4 earnings of $5.75 billion, or $1.38 a share was well ahead of the forecast $4.5 billion, or $1.11 a share. Wells Fargo’s (ticker: WFC) revenue of $20.9 billion topped projections of $18.8 billion. The results showed a huge increase from last year when the bank earned 66 cents a share on $18.5 billion in revenue. JPMorgan Chase (NYSE: JPM) and Citigroup (NYSE:C) also reporting on Friday along with BlackRock (NYSE: BLK). The earnings come after a week that has seen many banks stocks hit 52-week highs.
Q4 2021 earnings before the bell; conference call at 10 a.m. ET Friday
- $5.75 billion, or $1.38 a share. A huge increase from last year when the bank earned 66 cents a share on $18.5 billion in revenue. Projected EPS: $1.11
- $20.9 billion versus projected revenue: $18.80 billion
- Return on equity, a measure of profitability, nearly doubled to 12.8%, up from 6.6%.
- Sale of its corporate trust and asset management businesses added $943 million, or 18 cent a share, to the bank’s bottom line.
- During 2021 the bank bought back $14.5 billion in stock.
“As I look back on my slightly more than two years at Wells Fargo, I’m incredibly proud of what our team has accomplished as we remake this incredible franchise,” Chief Executive Charlie Scharf said in a statement.
Net interest income at WFC fell 1% in the fourth quarter due to low rates and weak loan demand and loan balances elevated prepayments.
Non-interest income, however, surged 27% due to strong results in the bank’s venture capital and private-equity businesses as well as the sales of its corporate trust and asset management businesses.
“The changes we’ve made to the company and continued strong economic growth prospects make us feel good about how we are positioned entering 2022. But we also remain cognizant that we still have a multiyear effort to satisfy our regulatory requirements — with setbacks likely to continue along the way — and we continue our work to put exposures related to our historical practices behind us,” Scharf said.
Overall, analysts and banks are looking for a strong earnings season, partly in response to the improving economy and the vaccine rollout but predominantly from the rise in interest rates with the Fed looking to raise rates. Banks will benefit from rising rates, provided that they don’t go up too rapidly and hurt demand for mortgages, credit cards and other loans.
Wells Fargo has been the top-performing stock among U.S. lenders over the past year, up over 60% to $54.67. With the seemingly endless major scandal involving fake accounts behind it and a new management team in place, Wells Fargo has been gaining support. $WFC has risen around 11% in the past month alone.
The earnings come after a week that has seen many banks stocks hit 52-week highs. The Invesco KBW Bank ETF, which has Bank of America, Wells Fargo, JPMorgan Chase, US Bancorp and Citigroup as its top holdings, is up over 8% already this year and more than 19% in the past six months. Fourth-quarter corporate earnings likely benefited from this firming economic backdrop.
There is that reputational risk hangs over the bank after a series of scandals that included creating fake customer accounts.
Odeon, Morgan Stanley, Barclays and Piper Sandler upgraded WFC in the last three months.
“We’re getting back onboard our Wells Overweight call, ~2 months after our downgrade to Equal-weight. Why the change? Biggest driver is higher Fed Funds Futures, as Wells is the most asset sensitive stock in our coverage. Every 50bp increase in Fed Funds increases NII 7% vs 2% at median Large Cap Bank, and EPS 16% vs 3% at median Large Cap Bank. We don’t think this is fully priced into the stock, which is only up 4% since September 21st, the day before the forward curve first pulled forward a rate hike into 2022, vs the 29% benefit to 2023 earnings from baking in the current Fed Funds Futures. Wells is in a strong position to monetize higher rates, as cash stands at 15% of earning assets, 7% points above pre-pandemic levels vs 4% for the group. This provides latent fuel for loan growth and securities reinvestment. Excess capital at Wells stands at 10% of market cap vs.5% for median Large Cap Bank, enabling a net buyback yield of 10% in 2022 and total cash return of 12%.”Morgan Stanley’s Betsy Graseck ,
“While the year is still quite early, it has started off very well for bank stocks. We share the market’s enthusiasm, we foresee favorable revenue momentum, and continue to find the space a solid relative value compared to the broader market. But in light of the group’s move, we are shuffling a couple ratings to reflect our updated feelings for relative value and positioning for emerging trends.”Piper Sandler’s Scott Siefers upgraded WFC to Overweight
Bank Release Schedule
- JPMorgan Chase, Citi and Wells Fargo report earnings on Friday. The world’s largest asset manager BlackRock (BLK) also reports.
- US Bancorp and Bank of America release their earnings on Wednesday, January 19 with investment banking powerhouse Morgan Stanley.
- Goldman Sachs is due to report earnings on Tuesday, January 18.
The brighter outlook for bank profits coincides with higher in Treasury yields. The benchmark 10-year Treasury yield has risen by over 70 basis points for the year-to-date, with higher interest rates boosting banks income from their core lending businesses. Big banks’ fourth-quarter results should get another boost from trading activity, given the stock markets record-setting rally and volatility in the bond markets. Fixed-income trading revenues have risen in the past year by the most in at least a decade across the bond trading divisions at Goldman Sachs, Citi, Morgan Stanley, JPMorgan and Bank of America.
- Q4 2021 earnings before the open; conference call at 8:30 a.m. ET Friday
- Projected EPS: $3.00
- Projected revenue: $29.85 billion
JPMorgan Chase $JPM, America’s largest bank kick off the banking sector’s Q4 22 earnings season on Friday before the market opens with expectations for strong earnings. Last quarter JP Morgan blew away consensus expectations on both profits and revenues.
JPM currently has total assets of nearly $4 trillion and remains the biggest bank in the world by market capitalization at $490.7 billion. JPMorgan Chase in December was fined $200 million by regulators for several “bookkeeping failures” and for letting employees use personal communications devices to send texts and emails about sensitive company business and evade authorities.
JPMorgan Chase & Co. (JPM) is expected to report revenues of $29.8 billion and earnings per share (EPS) of $2.98, based on a FactSet survey of 21 analysts.
The bank rally has been extended this year by expectations for the rise in rates not impacting the economy reopening and infrastructure spending. The new surge in home prices has also buoyed optimism for the mortgage business and banks’ profits thereto.
- Q4 2021 earnings before the open; conference call at 11 a.m. ET Friday
- Projected EPS: $1.55
- Projected revenue: $16.92 billion
Shares of Citigroup have been lagging behind other bank stocks. Since January 2021, C is down 1.69%) at $66.21 a share. Citigroup is currently undergoing changes under the leadership of Chief Executive Officer Jane Fraser and is in the process of exiting its consumer banking business in 13 markets around the world, a process that is expected to provide the bank with $7 billion in cash. Citi now operates consumer banking solely from 4 wealth centers: Singapore, Hong Kong, UAE, and London.
However, the exits from Australia and South Korea have not been smooth and cost Citigroup nearly $1.7 billion. Another black mark was Citigroup’s Board of Directors approved incentives that could see three executives in the bank earn up to $5 million in compensation based on the transformation’s success.
The stock has risen 12.6% since the company last reported earnings on Jan. 15.
- Q4 2021 earnings before the bell; conference call at 8:30 a.m. ET Friday
- Projected EPS: $10.10
- Projected revenue: $5.12 billion
BlackRock income from its ETF and investment management income continues to soar being the largest investment management company in the world with assets under management of $9.5 trillion as of October 2021. In the past 12 months, BlackRock stock has risen about 21% higher to its current price of $889.48 a share.
BlackRock recently announced that it is pulling $2 trillion of assets that had been managed by State Street (NYSE:STT). BlackRock says it will reduce its reliance on a single outside investment manager and help to lower its costs for back-office workers. BlackRock said it plans to move the administrative and accounting tasks that State Street had performed to other lenders, such as Citigroup and Bank of New York Mellon Corp. (NYSE:BK).
Source: JPM, WFC, C, BLK,
Live From The Pit
From The TradersCommunity Research Desk