What to watch in bank space earnings reports
JPMorgan (JPM) and Citigroup (C) are scheduled to report quarterly results on October 12, while Wells Fargo (WFC) is scheduled to report on October 13.
What to watch for:
During its last earnings call, JPMorgan said it sees 2017 average core loan growth of about 8%, 2017 net interest income up over $4B year over year, 2017 adjusted expense of about $58B, and 2017 net charge-offs of about $5B.
On September 12, JPMorgan’s Dimon added that trading revenue should be down about 20% in Q3.
Meanwhile, back in July, Citi said it was “on track” to increase return on capital and that it expects continued year over year revenue growth in retail banking, excluding mortgage, as well as modest organic growth in cards.
Meanwhile, mortgage should continue to be a headwind in Q3, the company noted. Later in the month, Citi CEO Michael Corbat said he sees earnings per share approaching $9.00 in 2020.
During Wells Fargo last earnings call, the bank said it is targeting $2B expense reduction by year-end 2018.
Additionally, the bank plans to close about 450 branches in 2017-2018, and expects to increase Q3 dividend to 39c per share.
Last month, Wells Fargo said it sees net interest income up low to mid-single digits in 2017, with loan growth in Q3 expected to be impacted by continued decline in auto loans, run off of the junior lien mortgage portfolio, and a slower and more competitive commercial and CRE lending environment.
2. VALUATION, LACK OF CATALYSTS:
Back in July, #Berenberg analyst James Chappell downgraded Wells Fargo to Sell saying the bank’s competitive advantages have been eroded. Wells has become “too big to differentiate itself” from wider market trends and deliver the expected growth, Chappell contended.
A few days later, BMO Capital analyst James Fotheringham cut his rating for Citi to Market Perform based on valuation and lack of catalysts.
Last month, JPMorgan also saw a rating change, with Deutsche Bank analyst Matt O’Connor downgrading the stock to Hold as he sees net interest income growth slowing and credit costs inching up as the Fed raises short rates and the yield curve flattens.
Further meaningful outperformance of JPMorgan shares will be harder amid increased competition within investment banking and trading as well as slowing loan growth, he contended. 3.
Late July, Andrew Bary wrote on Barron’s that Citi could rise by 50%, or hit $100, saying he sees upside ahead as it offers a low valuation and what could be the highest earnings growth rate among its peers in upcoming years.
Two weeks later, Wells Fargo analyst Mike Mayo resumed coverage of Citi with an Outperform rating, calling it his top pick in Large-Cap U.S. Banks. Mayo expects the stock to double in four-to-five years.
Meanwhile, Citi analyst Keith Horowitz argued that now is the time to buy Wells Fargo, telling investors Wells Fargo’s business improved, not broken. The company’s issue is an “aggressive sales culture encouraged the wrong behavior leading to strong account generation,” which had an immaterial impact to earnings, Horowitz added. 4.
WELLS TO REMEDIATE CUSTOMERS
On July 28, Wells Fargo announced a plan to remediate auto loan customers of Wells Fargo Dealers Services who may have been financially harmed due to issues related to auto Collateral Protection Insurance policies.
This month, the bank also announced plans to reach out to all home lending customers who paid fees for mortgage rate lock extensions requested from September 16, 2013, through February 28, 2017, and to refund customers who believe they should not have paid those fees.
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