Earnings week for Banks! Thoughts?

Bank of America!

The bank’s results easily topped analysts’ estimates, with profits totalling $7.7 billion, or 85 cents a share. Analysts had been expecting net income to hit $6.1 billion, or 71 cents a share. Revenue also came in ahead of expectations at $22.8 billion, ahead of the $21.7 billion expected by Wall Street.

Shares were up by 2.6% in premarket trading which is different to its past trends – it used to lag during earnings season. Profits were helped by a $1.1 billion release of reserves set aside last year in anticipation that there would be a wave of defaults due to the pandemic.

Well, the good news? Advisory and global wealth and investment management business. Global Banking saw a 57% jump in profits thanks to investment banking. BOA’s global wealth business posted record profits of $1.2 billion.

Thoughts on this and news on other banks?

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Banks’ earnings can be used as barometer of US macro trends. The theme for 2021 so far has been increased deal making (from IPO, SPAC, and M&A). So banks with stronger Investment Banking business continue to post profits from this vertical (especially Citi and Morgan Stanley - the premiere tech IB).

In fact global IB fees hit an all-time high (from FT):

From WSJ.

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Citi:

  • Profit boost due to $1.16 billion release of loan loss provisions.
  • Net revenue was up by $3.1 billion in the year-ago quarter
  • CEO Jane Fraser has a target price for the stock at $82
  • “Investment banking had the second-best quarter in a decade” according to the CEO
  • Private banking revenues increased by 4% a year
  • Fraser was optimistic about Asia for the years ahead

Wells Fargo

  • Performed better than expectations due to release reserves anticipated for sour loans
  • Posted 59% jump in profits from the year-ago quarter
  • The bank still operates under the $2T cap due to the fake accounts scandal 5 years ago

Goldman Sachs

  • Earned $14.13 per share a quarter
  • “The third quarter saw strong operating performance and an acceleration of our investment in the growth of Goldman Sachs,” said CEO David Solomon
  • Goldman’s powerhouse investment banking unit generated its second-highest quarterly revenues of $3.7 billion, up 88% from the year-earlier total.
  • “The firm remained ranked #1 in worldwide announced and completed mergers and acquisitions, and in worldwide equity and equity-related offerings, common stock offerings, and initial public offerings for the year-to-date,” Goldman said.
  • The firm held 23.8% RoTE (RoTE describes the return generated on money shareholders have invested in a company.)
  • The stock remains inexpensive versus peers based on book values and earnings.

JP Morgan

  • Covered it earlier
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The Banks reported earnings for 4Q and here’s all you need to know:

Starting off with Wells Fargo which topped Wall Street’s expectations. Profits were reported to be $1.38 per share of $5.75B which is well ahead of consensus estimates of $4.5B. The revenue was $20.9B which topped projections of $18.8B.

The bank earned 66 cents per share on $18.5 billion in revenue in the fourth quarter of 2021, a tremendous rise from the previous year. The bank’s return on equity, a metric of profitability, nearly quadrupled from 6.6 percent to 12.8 percent.

The sale of Wells Fargo’s corporate trust and asset management operations, which brought $943 million or 18 cents per share, contributed to the bank’s better performance.

“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,” Scharf said in a statement referring to the fake account scandal and it made enormous changes which include management and cutting down on costs. That year the bank brought $14.5B in stock.

CitiGroup reported a net income of $3.2B which is a whopping 26% drop from a year ago. The reason was attributed the loss to expenses which rose by 18% to $13.5B in the quarter.

The revenue of $17B was above the expectations of $16.85B. In the third quarter, revenue from fixed-income and stock markets trading was $2.5 billion and $785 million, respectively. Analysts had expected $2.83 billion and $866.7 million, respectively.

Citigroup CEO Jane Fraser said in a statement that the bank had a “decent end to 2021 driving net income for the year up to $22 billion in what was a far better credit environment than the previous year.”

Barclays analyst Jason Goldberg’s initial outlook for Citigroup in 2022 “includes improved net interest income, lower fee income, and increased expenses, likely resulting in near-term negative operating leverage.”

JP Morgan already covered in a separate thread.

Today Goldman Reported earnings, a short disappointment but Bull in the long run according to some reports.

For the first time in 7 quarters, Goldman Sachs Group failed to earn more than what Wall Street expected as trading revenues were down like other banks and equity investments gain diminished.

Here are the highlights:

  • Earned $10.81 a share in 4Q - down 11% YoY
  • Stock fell by 8%
  • Investment banking revenues were down by 7% a year to $3.99B
  • It’s equity investments yielded $1.4B from its $19B portfolio

CEO David Soloman said that there “continues to be a fair amount of uncertainty” - referring to the current operating environment.

Analysts said the firm is making progress in diversifying its revenue base. Goldman plans to provide an update next month to investors about its strategic goals, possibly including a targeted level of return on equity.

It’s expected that Goldman will benefit from the same and analysts are bullish in the long run for the same.

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Morgan Stanley reported earnings, and the shares got a boost as the Bank posted better results than what was expected out of it!

Profit was up by 9% to $3.7B, $2 per share. Analysts were expecting around 10 cents less. However, the revenue was reported to be less, about $14.5B.

What was the driver of its growth?
Well, Deal-making, with advisory revenue climbing to 6% and 43% for the entire year. Likewise, Morgan Stanley saw its trading divisions decline as the markets were less volatile. Fixed-income trading was down by 31%, while equities revenue climbed 13%.

The Wealth Management group reported a $6.3B in revenue compared to $5.7B in the year-ago quarter. The Bank acquired Eaton Vance and saw its Investment Management division surge by 59%!

“2021 was an outstanding year for our Firm…with stand-out results in each of our business segments,” Morgan Stanley chief executive James Gorman said. “We have a sustainable business model with scale, capital flexibility, momentum and growth.”

Bank of America likewise posted good signs, unlike the banks before. Profits were by 28%, which is $7B or 82 cents a share. The revenue fell short of expectations at $22.1B. The Bank had higher expenses in the 4Q due to higher compensation costs. Revenue grew faster hence the positive outcome.

Lending was up as the loan balance grew 6% to $979B. Deposits were high by 15%.

“Our fourth-quarter results were driven by strong organic growth, record levels of digital engagement, and an improving economy,” Bank of America Chief Executive Brian Moynihan said in a statement. “We grew loans by $51 billion and added $100 billion of deposits during the quarter, further strengthening our position as the leader in retail deposits.”

It had a slight decline of 2% in trading revenue.

That’s all!

Credits: Barron’s