Earnings for the financial sector kick off Tuesday with Wells Fargo (WFC) and JPMorgan (JPM) reporting their latest results before the markets open. On Wednesday, Bank of America (BAC) will announce its Q4’13 results, followed by Citigroup (C) and Goldman Sachs (GS) on Thursday and Morgan Stanley (MS) on Friday.
Analysts are divided on how the sector is likely to perform. SNL Financial, for instance, notes that there are many factors that could produce weak results for financial companies. But S&P Capital IQ experts say there are plenty of reasons that at least some firms should see improvements in both their bottom line and stock prices.
SNL Financial says that, overall, Wall Street’s fourth-quarter 2013 earnings expectations for the largest U.S. banks are “modest.” It points to “restrained loan growth, subdued mortgage income, lingering margin pressure, high regulatory compliance and legal costs, and, in the case of firms with major investment banking operations, soft capital markets revenue” in its latest analysis, released on Friday.
In fact, experts at SNL estimate that 15 of 19 major U.S. banking companies should report fourth-quarter 2013 net income that is down from the previous quarter. Most are expected to report lower revenue as well.
Evercore Partners analyst John Pancari, for instance, labels upcoming earnings reports “sluggish” due to flat net interest income and single-digit loan growth. Short-term rates remain historically low, while competition in the sector is “fierce,” meaning that new loans often come in with lower yields.
At the same time, a bump in the 10-year Treasury yield has pushed up long-term rates, making 30-year mortgages less affordable and shrinking demand for mortgage refinancing.
According to Oppenheimer & Co., the larger banks also are being hurt by “paltry” conditions in the capital markets. “Despite a global bull market in equities that has taken the S&P up more than 60% in the past two years, investment bank trading profits seem likely to be down on a year-over-year basis again this quarter,” the group said in a recent report.
Street analysts expect Wells Fargo to report earnings of $0.98 per share on sales of $20.69 billion for the quarter. In Q4 2012, the bank earned $0.92 a share on revenue of $21.95 billion.
The consensus view on JPMorgan is that it will report earnings of $1.35 per share on revenue of $23.68 billion vs. year-ago earnings per share of $1.39 and sales of $24.38 billion.