Bank Stock Roundup: Q4 Earnings Season Begins, Wells Fargo, BofA & Citi Top Estimates

Most banks that reported fourth-quarter 2018 results this week managed to record bottom-line improvement, driven by rising rates, improving asset quality and lower taxes. In addition to the benefits from higher interest rates, banks’ performance mirrored a marginal upswing in loans.

Importantly, though escalating trade-war concerns, Brexit issues, anxiety on rising rates and some other geo-political tensions during the quarter created high volatility, dismal fixed income trading performance was recorded. Further, investment banking business underperformed, impacted by disappointing underwriting business, partly muted by strong financial advisory revenues.

Further, mortgage banking business was disappointing. Nevertheless, controlled non-interest expenses were witnessed despite high spending on technology and personnel, and other market development initiatives. In addition, legal expenses remained manageable.

(Read: Bank Stock Roundup for the Week Ending Dec 21, 2018)

Important Earnings of the Week

1. Citigroup C kick-started the earnings season and delivered a positive earnings surprise of 3.9% in fourth-quarter 2018, backed by expense control and lower cost of credit. Adjusted net income per share of $1.61 for the quarter handily outpaced the Zacks Consensus Estimate of $1.55. Also, adjusted earnings climbed 26% year over year. Citigroup displayed prudent expense management during the quarter. Moreover, higher equity market revenues, along with loan growth, were positives. However, investment banking revenues disappointed as strong advisory business were more than offset by lower underwriting fees on lower market activity. (Read more: Citi Q4 Earnings Beat on Low Expenses, Revenues Disappoint)

2. Despite dismal investment banking and fixed income trading performance, loan growth, higher interest rates and a slight fall in costs drove Bank of America’s BAC fourth-quarter 2018 earnings of 70 cents per share, which handily outpaced the Zacks Consensus Estimate of 63 cents. Also, the figure was up 49% from the prior-year quarter (excluding the impact of the tax act). (Read more: BofA Beats Q4 Earnings & Revenue Estimates, Costs Down)

3. Dismal fixed income trading and underwriting business performance affected JPMorgan’s JPM fourth-quarter 2018 earnings of $1.98 per share, which lagged the Zacks Consensus Estimate of $2.20. However, the figure surged 85% from the prior-year quarter. As expected, Markets revenues recorded a fall. A 15% rise in equity trading income was offset by 16% decline in fixed income trading revenues. Further, home lending business revenues fell 8% year over year, mainly due to lower net production revenues. (Read more: JPMorgan Q4 Earnings Lag on Trading, Underwriting Woes)

4. Comerica’s CMA fourth-quarter 2018 earnings per share of $1.88 surpassed the Zacks Consensus Estimate of $1.86. Also, the results compared favorably with year-ago adjusted figure of $1.24. Higher revenues and improved credit metrics were recorded. Moreover, the capital position remained strong. Also, lower expenses were a tailwind. However, lower deposits and lower fee income were the undermining factors. (Read more: Comerica Q4 Earnings Beat Estimates, Revenues Increase)

5. Backed by lower expenses, Wells Fargo WFC delivered a positive earnings surprise of 3.4% in fourth-quarter 2018. Earnings of $1.21 per share surpassed the Zacks Consensus Estimate of $1.17. Also, the bottom-line compared favorably with $1.16 recorded in the prior-year quarter. Decline in expenses and higher net interest income aided results. Moreover, improving credit quality was a tailwind. However, decline in fee income was an undermining factor. Further, reduction in loans and deposits acted as headwinds in the quarter. (Read more: Wells Fargo Q4 Earnings Beat Estimates, Costs Decline)

6. KeyCorp’s KEY fourth-quarter 2018 adjusted earnings of 48 cents per share surpassed the Zacks Consensus Estimate by a penny. Also, the figure compared favorably with earnings of 36 cents recorded in the prior-year quarter. Improvement in net interest income and a decline in expenses drove the results. Further, loans and deposits witnessed growth and capital ratios improved. However, higher provision for credit losses and a decrease in fee income were the undermining factors. (Read more: KeyCorp Q4 Earnings Top as Revenues Rise, Costs Fall)

Price Performance

Here is how the seven major stocks performed:

Company	Last Week	6 months
JPM	3.0%	-5.4%
BAC	11.4%	-2.4%
WFC	2.8%	-11.6%
C	10.2%	-8.7%
COF	3.3%	-12.1%
USB	4.9%	-1.5%
PNC	2.3%	-12.5%

Over the last five trading sessions, BofA and Citigroup were the major gainers, with their shares increasing 11.4% and 10.2%, respectively. Furthermore, shares of U.S. Bancorp USB rallied 4.9%.

In the past six months, shares of PNC Financial and Capital One Financial COF have dropped 12.5% and 12.1%, respectively. In addition, shares of Wells Fargo WFC have declined 11.6%.

What’s Next?

In the coming week, the focus will solely be on earnings releases. Some banks are scheduled to report fourth-quarter earnings in the next five trading days. Fifth Third Bancorp FITB and Zions Bancorporation ZION will be reporting on Jan 22, BankUnited, Inc. BKU and Northern Trust Corporation NTRS on Jan 23, while Huntington Bancshares Incorporated HBAN on Jan 24.

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