Bank Earnings Season Begins Friday: Analysts Warn Of Possible 'Sell-Off' On Day 1

Investors anxiously await the bank earnings season kick-off, headlined by major players including JP Morgan Chase & Co. JPM, Bank of America Corp. BAC, Wells Fargo & Company WFC, Citigroup Inc. C and Bank of New York Mellon Corp. BK which are scheduled to unveil their fourth-quarter results Friday.

Additionally, Blackrock Inc. BLK, the world’s largest asset manager, which introduced its first Bitcoin ETF, the iShares Bitcoin Trust ETF IBIT on Thursday, was also slated to disclose its earnings.

According to data from the Benzinga Pro platform, consensus among Wall Street analysts expected the following earnings per share (EPS) and estimated revenue for the listed financial companies set to report this Friday:

• Bank of America: Estimated EPS of $0.63 and estimated revenue of $23.743 billion.
• Bank of New York Mellon: Estimated EPS of $1.13 and estimated revenue of $4.294 billion.
• BlackRock: Estimated EPS of $8.79 and estimated revenue of $4.619 billion.
• Citigroup: Estimated EPS of $0.79 and estimated revenue of $18.755 billion.
• JPMorgan Chase: Estimated EPS of $3.36 and estimated revenue of $39.778 billion.
• Wells Fargo: Estimated EPS of $1.20 and estimated revenue of $20.319 billion.

When compared to the same quarter of the previous year, Wells Fargo and Bank of New York Mellon stand out as the only two banks in the group expected to report an increase in both EPS and revenue.

In contrast, all other banks are experiencing a decline in EPS. Bank of America was the only one showing a decrease in both EPS and earnings compared to the fourth quarter of 2022.

Name	Year-on-Year Change in EPS	Year-on-Year Change in Revenue
Bank of America (BAC)	-25.88% (Decrease)	-3.22% (Decrease)
Bank of New York Mellon (BK)	+82.26% (Increase)	+9.61% (Increase)
BlackRock (BLK)	-1.57% (Decrease)	+6.49% (Increase)
Citigroup (C)	-31.90% (Decrease)	+4.15% (Increase)
JPMorgan Chase (JPM)	-5.88% (Decrease)	+15.12% (Increase)
Wells Fargo (WFC)	+79.10% (Increase)	+3.34% (Increase)

Shares of major financial stocks, as tracked by the Financial Select Sector SPDR Fund XLF, rose 13.4% in the fourth quarter of 2023, marking their strongest performing quarter since Q1 2021.

Insights On Bank Earnings

Wedbush analysts David J. Chiaverini, CFA; Brian Violino, CFA and David Giunta anticipated a stable fourth quarter for banks, with the prospect of easing net-interest margin (NIM) compression. However, they foresee ongoing negative credit migration due to the delayed impact of the Fed’s rate increases.

The analysts acknowledged lower rates could be beneficial for banks. They might result in reduced deposit costs, increased loan demand and relief from credit stress caused by sharp rises in debt service costs.

Bank of America’s equity research team, led by Ebrahim H. Poonawala, noted that historically, “bank stocks tend to sell-off on day one.”

Given the recent rally in bank stocks, they anticipated a potentially significant reaction to any negative earnings surprises.

The team maintained a positive outlook on Wells Fargo, considering the negative investor sentiment on the near-term NII/EPS outlook as an opportunity to add exposure. They also held a positive bias on BNY Mellon, seeing it as an under-the-radar turnaround story with strong execution.

Looking ahead, if a hard landing scenario is averted, bank stocks have the potential to build on recent gains and address credit concerns, BofA believed. Bank stocks still trade at a relative discount compared to the S&P 500 when considering historical P/E ratios, analysts added.

In an earlier note published this month, Bank of America also listed several bank stocks expected to perform well in 2024. Regional bank players such as New York Community Bancorp, Inc. NYCB, KeyCorp KEY, and Truist Financial Corporation TFC topped the list as preferred picks.

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