JPMorgan Chase (NYSE:JPM): The financial sector stormed back from a rough first half of 2016 to close the year up over 20%. President Trump’s shocking victory along with the Fed’s decision to raise rates for only the second time in a decade restored faith in the banking sector. The combination of these two events alone sets a favorable tone for JPM heading into its report Friday morning. Analysts expect this quarter to build on the fundamental improvements made throughout fiscal 2016. Increased trading and investment banking activity along with improving net interest margins should lead to another better than expected report. JPM has topped earnings and revenue estimates in each of the past 4 quarters despite a relatively beaten down financial sector. On the downside, higher interest rates means a strong U.S. dollar. JPM’s vast exposure to international markets makes it vulnerable to currency fluctuations and the macroeconomic uncertainty plaguing many countries. Analyst’s estimates continue to edge higher in the days leading up to banks earnings season, perhaps to levels unsupported by the current environment.
Bank of America (NYSE:BAC): After Brexit in mid-June, investor’s expected Bank of America to underperform for the remainder of 2016, but they couldn’t be more incorrect. In reality, the commercial bank made a complete 180, finishing the year up nearly 43% driven by post-election and rate hike gains. Naturally trading revenue and net interest margins will be front and center in the quarter to be reported with analysts expecting a large uptick from the prior year. Similar to JPM, Bank of America’s massive exposure to Europe makes it vulnerable to currency headwinds and growing uncertainty within the region. When Theresa May triggers article 50, Bank of America will be the first to suffer. In the meantime, short interest is reaching new heights. The recent stock price appreciation comes with a big question mark about whether it can continue in 2017.
Wells Fargo (NYSE:WFC): The Wells Fargo story took a different direction than its peers. In early September reports emerged that Wells Fargo employees were directed to open new accounts without notifying clients. John Stumpf’s old catch phrase “eight is great” finally came back to bite him in a controversial way. In the weeks after, Stumpf stepped down from his positions as CEO and Chairman of the Board while Wells Fargo coughed up about $185 million in settlements. In another blow to its reputation, the Federal Reserve reported that Wells Fargo’s “living will” plan failed to meet the latest round of requirements. The Fed can now throw the hammer down and force Wells Fargo to pay another considerable penalty. Analyst’s don’t believe the series of unfortunate events will materially impact earnings. The bank should continue to see steady improvements in deposits, loans and credit quality that may offset it’s other misfortunes.
Blackrock (NYSE:BLK): Blackrock also saw a considerable boost from the shocking results of the US presidential election. Shares, which had otherwise been stagnant, shot up in the final two months of 2016 and ended the year 23% higher. Unlike retail banks, Blackrock makes money from managing more funds, selling its proprietary Aladdin risk management technology and through a slew of ETFs, better known under the name iShares. In the third quarter, each of these made considerable gains given the new surge in trading activity. Analyst’s at Estimize expect Blackrock’s disciplined approached, coupled with improvements in the aforementioned business, to drive favorable comparisons in the fourth quarter.
PNC Financial (NYSE:PNC): PNC’s across the board gains in recent quarters led shares to shoot up over 45% in the past 6 months. A large portion of these gains came by way of improvements in banking and real estate businesses. Consumer lending on the other hand grew marginally on the backs of residential mortgage, auto and credit card loans. PNC made equally impressive gains in other parts of its business including asset management, which rose by $404 million during the third quarter. Like its peers listed above, the recent series of events could be driving overly optimistic estimate activity. If that is the case then the banks will be in store for a rough earnings season.