Fourth-quarter results dominated the headlines for banking stocks in the last five trading days. After successfully confronting the tough industry backdrop and huge litigation costs in the first three quarters of 2014, banks succumbed to challenges this time around. Though the banks were able to beat/meet the Zacks Consensus Estimate, it was largely due to conservative earnings estimates provided by the analysts.
Overall performance of banks remained dismal during the quarter. Revenue growth remained a major challenge as a result of lower trading and investment banking income. Further, even prudent expense management was unable to lend substantial support to the bottom line this time around. Higher legal costs added to the woes. All these adverse factors, along with overall negative market sentiments, dragged the banking stocks down.
(Read the last to last week’s Bank Stock Roundup for Jan 9, 2015)
Recap of the Week’s Most Important Developments:
1. JPMorgan Chase & Co.’s reported earnings of $1.19 per share missed the Zacks Consensus Estimate of $1.30. This included $990 million of (after-tax) legal charges. Excluding this charge, the company would have earned $1.45 per share.
Legal charges aside, JPMorgan’s operating expenses were down significantly, depicting success of its cost-saving initiatives. However, improvement in net interest income was more than offset by a fall in non-interest income. Also, provision did not work in favor.
2. Amid a challenging industry backdrop, Wells Fargo & Company’s fourth-quarter 2014 earnings met expectations. The financial bigwig came out with earnings per share of $1.02, meeting the Zacks Consensus Estimate. Also, the reported figure was 2 cents ahead of the year-ago figure.
The company recorded higher revenues, and total loans and deposits continued to exhibit growth in this quarter. Further, the company recorded a reserve release of $250 million, reflecting an improving credit quality. However, higher expenses and increased provision for loan losses were on the downside (read more: Wells Fargo Q4 Earnings Meet Estimates, Revenues Up Y/Y).
3. Bank of America Corporation’s fourth-quarter 2014 adjusted earnings of 32 cents per share came a penny ahead of the Zacks Consensus Estimate. However, after considering certain non-recurring items, earnings per share stood at 25 cents compared with 29 cents earned in year-ago quarter.
Higher provision for credit losses and lower revenues (owing to lower mortgage banking income and trading income) were the major headwinds. Nevertheless, a well-controlled expense line partially supported the bottom line. Moreover, the quarter witnessed improved credit quality and strong capital ratios (read more: BofA Q4 Earnings Hit by Lower Trading Income, Expenses Down)
4. After delivering positive earnings surprises in the preceding three quarters, Citigroup Inc failed to keep the winning streak alive. Adjusted earnings per share for fourth-quarter 2014 came in at 6 cents, missing the Zacks Consensus Estimate of 9 cents. Further, earnings came significantly lower than the year-ago figure of 82 cents per share.
Lower-than-expected results were mainly due to higher operating expenses that included legal and related costs of $2.9 billion. However, top-line growth partially offset this downside.
Price Performance
The performance of banking stocks was pessimistic during the last five trading sessions. Disappointing fourth-quarter results along with negative market sentiments weighed on the stocks.
Also, investors remained concerned about the growth prospects of banks, given the anticipation of a continued challenging industry backdrop in the upcoming quarters. Consequently, the banking stocks showed a negative price movement.
In the last five trading sessions, most of the bank stocks have seen a decline. BofA remained the top loser with a 10.5% decline in its share price. BofA was followed by JPMorgan and Citigroup, with their share prices falling 7.3% and 7.0%, respectively.
Over the last six months, Wells Fargo was the lone bank whose share price increased marginally. However, Capital One Financial Corp and The PNC Financial Services Group, Inc. were the major losers, with price decreases of 8.7% and 5.5%, respectively.
What Next in the Banking Universe?
In the coming five days, earnings releases will continue to remain in focus. Big banks that are scheduled to announce results are Regions Financial Corporation on Jan 20 and both Fifth Third Bancorp and US Bancorp (NYSE:USB) on Jan 21. Moreover, Capital One, BB&T Corporation and KeyCorp. are slated to report on Jan 22.