Q3 Earnings Season Starts Strong For Banks As High Interest Rates Fuel Profits Bonanza

U.S. financial institutions kicked off earnings season on a robust note, surpassing analysts’ expectations for their third-quarter earnings per share.

• JP Morgan Chase & Co. JPM announced earnings per share (EPS) of $4.33, surpassing the consensus estimate of $3.96. Additionally, the largest U.S. bank reported third-quarter revenue of $39.87 billion, slightly exceeding the expected $39.63 billion.

• Wells Fargo & Co WFC disclosed an EPS of $1.48 in the previous quarter, exceeding estimates by almost 20%, which were at $1.242. Furthermore, the company reported revenue of $20.857 billion, surpassing the expected $20.086 billion.

• Citigroup Inc C reported an EPS of $1.63 last quarter, far outpacing Street’s estimates at $1.227 by a 33% margin. The company announced revenue of $20.139 billion, beating the expected $19.272 billion.
  
• BlackRock Inc. BLK saw its EPS sharply beating the Street consensus ($10.91 vs $8.34), while revenue came in at $4.522 billion, marginally lower than expected by $1.468 million.
  
• PNC Financial Services Group, Inc. PNC released an EPS of $3.60 in the third quarter, beating the expected $3.104. Revenue disappointed, coming in at $5.233 billion against the predicted $5.319 billion.
  
• The Progressive Corp. PGR announced an EPS of $1.74 in the third quarter, slightly above the $1.718 forecasted by analysts. On the revenue front, the insurance company reported $15.594 billion, surpassing estimates of $15.4 billion.

Market Reactions

U.S. financial stocks, as tracked by the Financial Select Sector SPDR Fund XLF, rose 0.8% at the time of this writing, in reaction to the slew of positive earnings.

The Progressive Corp. was the best-performing stock among financials on Friday, rallying more than 7%. For the insurance Titan this session marks the second-best one for 2023.

Wells Fargo rose nearly 4%, while JP Morgan rose 3%. Citigroup edged 2.2% higher, while BlackRock was flat for the day.

PNC Financial Services Group saw the steepest daily drop within the sector, down 2.9%.

Analyst’s Take On Q3 Bank Earnings

As per Goldman Sachs bank analyst Richard Ramsden, JPMorgan Chase delivered strong performance across various aspects, including exceeding expectations in net interest income (NII), core fees and core expenses.

Additionally, the company upgraded its NII guidance, lowered its expense guidance and achieved a core return on tangible common equity (ROTCE) of 24.2% for the quarter, surpassing both Street expectations by 310 basis points and management’s medium-term ROTCE guidance by 720 basis points, standing at 17%.

Goldman Sachs anticipated the investor reaction to Wells Fargo‘s results would be predominantly positive. This outlook was based on the fact the core pre-provision net revenue (PPNR) of $8.2 billion exceeded Street expectations by 3%. The company also raised its 2023 net interest income (NII) guidance from year-over-year growth of +14% to +16%.

It’s worth noting that while this increase was largely anticipated, it was somewhat mitigated by a $0.5 billion uptick in the 2023 expense guidance.

Citi reaffirmed its previous guidance for 2023 revenue and expenses. However, the company updated its net interest income (NII) guidance, shifting it from a range of $46 billion or more (excluding Markets) to a range of $46 billion to $47.5 billion (excluding Markets).

Goldman Sachs believed the market would perceive these results as exceeding expectations and the adjustment in NII revenue guidance as a positive development, indicating an improved revenue composition.

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