Market Volatility Helps Big Banks: A Q1 Earnings Roundup

The big bank earnings parade started Friday and continued into today's session, and the Financial Select Sector SPDR Fund XLF has shown muted reaction.

Expectations before the earnings season were upbeat, with Factset estimating that the financial sector could report the fourth-biggest year-over-year earnings growth among the 11 S&P sector classes.

The common theme across big bank earnings were strong equity trading revenues, reflecting the stock market volatility in the first quarter. The new tax law also brought down the banks' effective tax rate after serving as a drag in the fourth quarter of 2017. The investment banking business was a sore point for some banks. 

Here's Benzinga's summary of this quarter's big bank earnings: 

JPMorgan Boosted By Accounting Change, Tax Cut

JPMorgan Chase & Co. JPM set the ball rolling, with forecast-beating results for the first quarter. 

EPS (Actual/Estimate): $2.37/$2.28.

Revenue (Actual/Estimate): $28.52 billion/$27.63 billion.

Stock Reaction: A 2.7-percent drop on April 13.

The results included $505 million mark-to-market gains on a pre-tax basis due to the adoption of new accounting guidance on revenue recognition, which boosted earnings per share by 11 cents, the bank said. The new tax law lowered income tax expenses by $240 million.

Consumer and community banking revenues, which accounted for roughly 44 percent of overall revenues, rose 15 percent year-over-year, with net income rising a steeper 67 percent. Notwithstanding a 9-percent increase in corporate and investment banking revenues, which account for about 37 percent of the total, net income fell 23 percent.

Equity revenues jumped 25 percent but revenue in  fixed income, currencies and commodities was flat.

Citi Benefits From Trading Revenue

Citigroup Inc C soon followed with solid results that were boosted by lower taxes and higher equity market revenues.

EPS (Actual/Estimate): $1.68/$1.61

Revenue (Actual/Estimate): $18.87 billion/$18.86 billion

Stock Reaction: A 1.6-percent fall April 13.

The 3-percent increase in revenues came about due to growth in the Institutional Clients Group and Global Consumer Banking divisions. In the ICG segment, equity revenues jumped 38 percent, but FICC revenues fell 7 percent. Investment banking revenues were off 10 percent.

The bottom line received support from higher revenues and a lower tax rate, which fell from 31 percent in the first quarter of 2017 to 24 percent in Q1 of 2018. 

See also: Earnings Season: Your Guide To When Each Sector Reports

Wells Fargo Hit By Regulatory Concerns

Wells Fargo & Co WFC released preliminary results and cautioned that the numbers could change to the ongoing discussions with the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency to resolve issues related to sales of certain auto insurance and mortgage products.

EPS (Actual/Estimate): $1.12/$1.07

Revenue (Actual/Estimate): $21.93 billion/$21.75 billion

Stock Reaction: A 3.4-percent dip April 13.

Goldman Posts Biggest Upside Surprise

Goldman Sachs Group Inc GS reported the biggest earnings and revenue upside and increased its quarterly dividend by 5 cents.

EPS (Actual/Estimate): $6.95/$5.57

Revenue (Actual/Estimate): $10.04 billion/$8.69 billion

Stock Reaction: The stock fell 1.7 percent on April 17.

Goldman reported 5-percent growth in investment banking revenues and a 31-percent jump in institutional client services revenues. In the institutional client services segment, equity and FICC revenues climbed 28 percent and 23 percent, respectively.

Bank of America: The Stalwart

Bank of America Corp BAC's results were boosted by an increase in net interest income, as both loans and deposits grew. The effective tax rate fell by 9 percentage points, boosting the bottom line.

EPS (Actual/Estimate): 62 cents/59 cents

Revenue (Actual/Estimate): $23.1 billion/$23.1 billion

Stock Reaction: Shares rose 0.4 percent) on April 17.

Consumer banking, which fetched 39 percent of total revenues, saw 9-percent growth. Global wealth management revenues rose 6 percent. Sales and trading revenues were up merely 1 percent, as weakness in FICC revenues nearly offset the strength in equity trading revenues.

Morgan's Record Show

Morgan Stanley MS, though reporting last, was not the least of the bank group, as it reported record top- and bottom-line performance.

EPS (Actual/Estimate): $1.45/$1.25

Revenue (Actual/Estimate): $11.1 billion/$10.32 billion

Stock Reaction: The stock was up 1.05 percent at the time of publication Wednesday.

Morgan Stanley reported year-over-year revenue increases in all business segments. Investment banking revenues were up 7 percent and sales and trading revenues jumped 28 percent, with FICC and equity revenues increasing 12 percent and 30 percent, respectively.

Related Link:

Why Does Berkshire Hathaway Report Earnings On The Weekend?