JPMorgan, Citigroup, Wells Fargo Earnings Should Be Tepid, So Why Are Bank Stocks Hot?
JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC) and PNC Financial (PNC) are expected to confirm on Friday that financials had a lackluster second quarter, yet bank stocks are near long-time highs.
X Autoplay: On | Off Banks have largely telegraphed declines in their trading results, which have been hurt by calmer markets and muted client activity. JPMorgan Chase CFO Marianne Lake, at a conference in May, said that there had been fewer "idiosyncratic events" to jolt trade in Q2 — think recent populist agitation like Brexit or President Trump's election — and that more such incidents were were needed.
Other difficulties could hang over the results. The Federal Reserve's recent rate hikes have helped push up short-term interest rates. But long-term interest rates also fell during the quarter as doubts grew over Trump's ability to carry out an agenda intended to spur long-term growth, a story from Dow Jones noted this month.
The banks' earnings, which are expected to be roughly flat except for PNC Financial, will also come after lending activity cooled in the first quarter. Gains in the 10-year Treasury yield — which influences the value of mortgages and other types of credit — slowed for much of the quarter.
But bank stocks have been faring well in recent weeks. JPMorgan and Citigroup have hit longtime highs, while Bank of America (BAC), Wells Fargo and PNC Financial, among others, are near buy points.
- JPMorgan, Citigroup and other banking giants announced big buybacks and dividend hikes late last month after clearing the sound round of annual stress tests.
- Treasury yields have been trending higher again, in part on hopes for better economic growth, notably in Europe, as well as tighter monetary policy from the Federal Reserve and European Central Bank. Treasury yields dipped Wednesday as Fed chief Janet Yellen gave somewhat dovish testimony to Congress on Wednesday, but the central bank is raising rates and likely will start curbing its $4.5 trillion balance sheet soon.
- Deregulation. President Trump's legislative agenda is stuck and negative headlines regarding Russia probes and other matters continue to cloud his presidency, but his administration has the means and desire to enact regulatory relief.
"July earnings will feel like the middle of the swimming test with 60 seconds of treading water," Morgan Stanley analyst Betsy Graseck said in a research note. "You're looking forward to the freestyle sprint up next."
"Deregulation is the next catalyst for the money centers," she added, referring to the global money center banks.
Analysts' hopes have been raised by a recent Treasury Department report that called for broad financial deregulation — much of which could be pushed through without congressional approval, Treasury Secretary Steven Mnuchin has said. Growth could also come as the administration installs people in top regulatory positions who are more sympathetic to the financial industry.
Estimates: Wall Street expects earnings per share to increase 1% to $1.57, with revenue rising 2% to $24.483 billion, according to Zacks Investment Research.
JPMorgan CEO Jamie Dimon, during the bank's first-quarter earnings call, played down the softer trends in loans, saying that companies had options beyond loans to expand, such as deals or bonds.
Factors to watch, beyond broader industry trends, include Dimon's take on Brexit, the health of the consumer, and the company's luxury Sapphire Reserve card, said Barclays analyst Jason Goldberg in a research note.
JPMorgan stock rose 0.6% to 93.10 in Thursday stock market trading, still in range from an 89.23 double-bottom buy point. JPMorgan hit a record intraday high of 94.51 on July 6.
EPS is expected to fall 3% to $1.21, with revenue down 1% to $17.320 billion.
Goldberg said that Citigroup's investment banking segment has been strong, even in Europe, where recent elections and Brexit have been sources of anxiety. And he said he expected the bank to emphasize the progress of its credit card investments, including a co-branded deal with Costco (COST). Still, questions remain about the write-down Citigroup might take on its deferred tax assets if tax cuts make it through Congress.
Citi's results will also come days before the company's first investor day since before the financial crisis.
"Its earnings call could serve as a preview to its Investor Day on July 25 (first in over 9 years), where we expect management to lay out a more detailed blueprint to higher investor returns," Goldberg said.
Shares climbed 10 cents to 67.02. Citi rose to 68.91 on July 3, the highest since January 2009.
EPS is seen up 1% to $1.02; revenue is expected to edge up 0.6% to $22.287 billion.
Barclays analysts said that the brunt of the fallout from Wells' sham-account scandal — in which reams of fake accounts were created in an attempt to hit sales goals in a high-pressure environment — may be in the past. However, the firm said that bad press could still "persist for some time."
Others suggest that if the bank turns out strong loan growth, those troubles could shrink further into the past.
"For WFC, we expect a rebound in loan growth will help buoy investor concerns about lost business momentum at the company, and this should drive shares higher if there is no collapse in the net interest margin," Keefe, Bruyette & Woods analyst Brian Kleinhanzl said in a research note.
Wells Fargo rose 0.8% to 55.60. Shares climbed 0.2% to 55.17 on Wednesday. Wells is in a cup-with-handle base with a 56.70 buy point.
Wall Street expects EPS of $2.01, a 10% increase, on revenue of $4.001 billion, up around 0.6%.
Shares climbed 0.1% to 127.32 Thursday. The stock is trying to break out of a shallow, cup-with-handle shaped base with a 128.35 entry.
Bank of America, Goldman Sachs (GS), Morgan Stanley (MS) and many other financials are reporting Q2 earnings next week.
Capital One, Fifth Third, PNC, TD, and Wells Fargo Invest in Transactis
Top electronic billing and payment company receives investment from five of the largest U.S. commercial banks
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Apr 17, 2016, 12:00 ET
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NEW YORK , April 17, 2016 /PRNewswire/ -- Five of the largest U.S. commercial banks — Capital One, Fifth Third, PNC, TD, and Wells Fargo — and Safeguard Scientifics announced they have invested a total of $30 million in Transactis, a leading provider of electronic billing and payment solutions. Each bank, along with Safeguard, invested an equal amount in Transactis as part of a Series E financing, demonstrating the banks' continued leadership in payments innovation. Transactis' technology reaches more than 100 million households and businesses in North America .
"Businesses of all sizes rely on their banks to provide secure, innovative billing and payment services," said Joe Proto , chairman and CEO of Transactis. "We are so proud to serve the most progressive banks in the payments industry and even more proud that Capital One, Fifth Third, PNC, TD, and Wells Fargo are more than our customers, they're also now our investors." Inclusive of this funding, Transactis has raised $70 million .
There are more than 25 billion bills produced annually by more than 4 million companies in the U.S. alone, and only about a quarter of these bills are electronic, according to a 2015 Blueflame Consulting study. There is a big need for an electronic billing and payment system that banks are uniquely positioned to fill. Transactis provides a configurable, white-label, SaaS solution that transforms traditional paper billing and payment processing by enabling businesses of all sizes to replace paper bills, statements, invoices, payments and documents with efficient and cost effective digital alternatives.
"As a leading treasury management bank, Wells Fargo is committed to offering our clients the best solutions in payment processing," said Danny Peltz , head of Treasury Management at Wells Fargo. "Our investment in Transactis is another example of our dedication to provide our customers with innovative payment services."
"As one of the largest, diversified financial services institutions in the United States , PNC was Transactis' first bank client," said James G. Graham , executive vice president for Treasury Management at PNC. "We helped Transactis develop into a high-quality electronic billing and payment company serving PNC's B2C and B2B customers, and now we see an opportunity to influence the future of electronic bill presentment."
"The payments industry is rapidly changing and Capital One is committed to being on the forefront of that transformation," said Colleen Taylor , executive vice president at Capital One. "That is why Capital One invested in Transactis. We are passionately focused on providing leading technology solutions for our customers that make their business lives easier."
"Business back offices are still paper-heavy, and TD is committed to helping more than half a million businesses we serve become more time and resource efficient," said Rick Burke , head of Corporate Products and Services at TD. "We believe that our investment in Transactis will help meet our customers' demand for leading electronic payment solutions across North America ."
"Fifth Third is committed to providing secure, convenient commerce solutions that enable our business customers to improve operations and exceed their financial goals," said Randy Koporc , head of Payments and Commerce Solutions at Fifth Third. "We believe that our investment in Transactis will further enhance our ability to help business customers replace paper bills, statements, invoices, and payments with a digital solution."
"There is a major transformation taking place in billing and payments, and Transactis is paving the way," said Stephen T. Zarrilli , president and CEO of Safeguard and board member at Transactis. "Transactis has a robust history of partnering with some of the largest and most respected institutions across a broad range of industries. We're proud of what Joe and his team have achieved since we first deployed capital into the company in August 2014 , as part of the company's $11 million Series D financing, and look forward to supporting the company as it extends its leadership position in the billing and payments industry."
K&L Gates, LLP served as counsel to the banks for the investment agreements.