Financials Overview
This week, the “big banks” as they are often referred to, will release their results for the third quarter. After a rough first half of the year, the Financials are looking for a bit of a rebound this season. Faced with a slew of challenges as the year got underway, Financials saw year-over-year growth decline 8% in the first quarter for both earnings and revenues. The second quarter showed an improvement in the bottom-line which increased 3%, but sales pulled back 1%. Going into the third quarter, Estimize contributors are anticipating profit growth of 5% and sales growth of 4.3%.
The six biggest banks -- BAC, C, JPM, WFC, GS, MS -- are expected to do much better, averaging a consensus estimate of a 13.6% increase on the bottom-line and 3.0% growth to the top-line.
Three heavy-hitters, JPMorgan Chase, Wells Fargo and CitiGroup, will kick off the bank reports when they release results on Tuesday before the opening bell. With most of the large mortgage settlements that have plagued the banks for the last several quarters out of the way, the greatest headwinds for these three could continue to be lower trading volumes for fixed-income and equities as well weakness in mortgages. These concerns are particularly worrying for JPMorgan Chase and Citigroup, with lower mortgage originations and applications taking their toll last quarter. However, both companies have seen their estimates trend higher ahead of this week’s releases amid an improving home loan landscape. Currently, the Estimize community believes JPMorgan will report earnings per share (EPS) of $1.45 for the third quarter, $0.05 above the Wall Street consensus, representing a 2% increase year-over-year. Revenues are also anticipated to see a slight uptick from the year-ago quarter at $24.1B, a 1% increase. The EPS consensus from Estimize for Citigroup is $1.18 versus the Wall Street consensus of $1.12, implying a 16% increase, with revenues of $19.1B suggesting a nearly 7% increase. Wells Fargo, the country’s largest mortgage lender which is often seen as a bellwether for the housing market, funded a mere $47B worth of mortgages in the most recent quarter. No questioning this was a disappointing figure, but a marked improvement over the first quarter’s $36B, and a good sign that loan growth was heading in the right direction. Investors will look for that momentum to continue in the third quarter, with current EPS estimates of $1.02 showing a slight increase of 3% and revenues of $21B showing an increase of 2%.
The banks with less to worry about this quarter are Goldman Sachs and Morgan Stanley, both putting up impressive numbers last quarter. Analysts believe that fixed income, currencies and commodities trading, typically big money-makers for the likes of Goldman, could show revenue improvement from a year ago. Add to that a robust M&A environment which is driving business in the investment banking arm for both of these banks, as well as the improvement in their wealth management businesses. The current Estimize EPS expectation for Goldman is $3.75, a whopping $0.50 higher than the Street estimate, representing the largest delta between the Estimize and Wall Street consensus amongst the banks. If Goldman manages to come in at $3.75, that would put year-over-year growth at 30%. Revenues are almost expected to do just as well with an estimate of $8.1B versus $7.7B from Wall Street, this would be an increase of 21%. It’s important to keep in mind the year-ago quarter was very weak, making for easier comparisons this time around. As for Morgan Stanley, EPS is anticipated to come in at $0.57, growing 14% from Q3 2013, while revenues are expected at $8.36B an increase of 5.5%.
- Last Up: Bank Of America (BAC)
Bank of America, the country’s second largest bank in terms of total assets, will report on Thursday. During the quarter, the bank paid off a $17B mortgage lending settlement stemming largely from the purchases of Merrill Lynch & Co. and Countrywide Financial. The settlement amount is the largest ever reached between the U.S. and a single company, and is approximately equal to the bank’s total profit for the past three years. Estimize contributors are expecting very low earnings of $0.01 for the company, yet higher than the $-0.06 Wall Street consensus. At one penny per share, profits for Bank of America would be down 96% from Q3 2013. Revenue estimates of $21.5B are roughly in-line with the $21.7B reported in the year-ago quarter. Of the six banks mentioned here, this is the only one the Estimize community believes will post lower year-over-year earnings and sales.