The fourth-quarter earnings season has gotten underway as many of the Big Banks have been reporting in the last couple of weeks. Now, while the majority reported strong quarterly results, the financials sector, as a whole, isn’t expected to do well this quarter.
According to FactSet, financials is the only sector expected to report a year-over-year (YOY) earnings decline for 2022. Specifically, it’s forecast to fall 8.9% YOY. The big banks’ earnings are estimated to slip 15% over the same time period.
With that in mind, let’s take a look at how JPMorgan Chase & Co. (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo & Co. (NYSE:WFC) and Morgan Stanley (NYSE:MS) did this earnings season.
As you can see in the chart above, except for Citigroup, YOY earnings rose for these big banks. Most of the financial stocks dropped off earlier in the week despite their slightly better-than-expected earnings reports. JPMorgan fell 6.2%, Citigroup dropped 1.3% and Morgan Stanley declined about 4.9%. However, Wells Fargo jumped 3.7% this week and Bank of America climbed about 4.2%.
JPMorgan had a slight earnings beat for the fourth quarter, reporting earnings per share of $3.33, which beat consensus estimates for $3.03. Revenue of $29.3 billion missed estimates of $29.8 billion. So, JPMorgan posted a 9.7% earnings surprise and a 1.8% revenue miss.
JPM’s earnings got a slight boost from releasing $1.3 billion in loan loss reserves after $550 million in charge offs for the quarter. Charge offs in the fourth-quarter 2020 amounted to $1.1 billion. Fourth-quarter lending picked up, especially within its wealth management division.
Wells Fargo & Co. (WFC): Fourth-Quarter Earnings announced on Friday, January 14
Wells Fargo posted a fourth-quarter earnings beat, with earnings per share coming in at $1.25, compared to expectations for earnings of $1.00 per share. Revenue jumped 16% from a year earlier to $20.86 billion, crushing estimates of $18.68 billion. So, Wells Fargo achieved a 25.1% earnings surprise and an 11.7% revenue surprise.
Net income was $5.75 billion, which is up 92.2% YOY from the same quarter in 2020. The company had a huge repurchasing quarter, repurchasing $7 billion worth of shares during the fourth quarter, and $14.5 billion for the year.
Citigroup (C): Fourth-Quarter Earnings announced on Friday, January 14
Citigroup was the one bank stock on this list that reported a YOY earnings decline and missed earnings forecasts. Earnings per share missed expectations of $1.64 by 11.1%, with the company reporting earnings of $1.46. Revenue slightly topped expectations of $16.8 billion, coming in at $17.02 billion, so Citigroup posted a 1.4% revenue surprise.
However, investment banking revenue dropped 20% YOY, to $2.5 billion. Citigroup also announced that it will be selling its syndicates in four Southeast Asian countries for $2.7 billion. Its operations in Indonesia, Malaysia, Thailand and Vietnam are being acquired by the Singapore-based bank, United Overseas Bank. The sale will end the global consumer banking operations as a reporting segment.
Bank of America (BAC): Fourth-Quarter Earnings announced on Wednesday, January 19
Bank of America also posted a mixed quarter. Earnings per share of 82 cents topped estimates of 76 cents, while revenue came in under expectations of $22.19 billion at $22.06 billion. So, Bank of America reported an 8.3% earnings surprise but a 0.6% revenue miss.
I should add that revenue was up 9% from a year earlier. Bank of America also had to deal with higher expenses during the fourth quarter as — along with all the banks — it logged higher compensation costs. But company management said revenue grew faster this quarter, allowing the bank to post its second-straight quarter of YOY positive operating leverage.
Lending was another bright spot at Bank of America, as loan balances grew 6% to $979 billion from last year’s fourth quarter and now are near pre-pandemic levels.
Morgan Stanley (MS): Fourth-Quarter Earnings announced on Wednesday, January 19
Morgan Stanley’s earnings of $2.08 per share topped earnings expectations of $1.96 per share, equating to a 6% earnings surprise. Revenue missed expectations by over $66.8 million, at $14.5 billion, so Morgan Stanley posted a 0.5% revenue miss. This year’s earnings were up slightly compared to last year’s earnings results.
Unlike its rivals, which disclosed soaring compensation costs, Morgan Stanley did not share their expenses for the quarter.
The bank’s massive investment management business, bolstered by the Eaton Vance acquisition last quarter, rose 59% to $1.75 billion in revenue, edging out the $1.66 billion estimate.
My Outlook for the Rest of the Fourth-Quarter Earnings Season
Now, I know some folks think that financials will prosper in 2022 as a result of the Federal Reserve raising interest rates. However, I do not agree.
Brokerage firms are financials and like to root for themselves. I am an ex-banking analyst, and the slope of the yield curve is the most important factor impacting bank profitability. So, if bond yields do not rise by the same amount that the Fed raises short-term interest rates in the upcoming months, then the banks operating margins can get “squeezed” as the yield curve tightens.
Suffice it to say, I’m not too excited about this sector right now.
For the market overall, the reality is the global pandemic accelerated technological change, which boosted productivity in the U.S., with several industries leading the productivity miracle.
So, tech stocks, especially semiconductor companies, will have some of the best quarterly results in mid-January through mid-February. And wave-after-wave of positive results will not only help these stocks firm up but also drive their shares higher. It’s why I’m not concerned by the recent selling in the tech-heavy NASDAQ.
Tech stocks aside, this earnings season should also trigger rebounds in fundamentally superior stocks that were hit during this week’s selling. I expect Wall Street to become laser-focused on earnings over the next five weeks, and after all the reports are out, we’ll see who’s left standing. I anticipate the winners will be those with superior fundamentals.
Earnings reports for my Model Portfolio stocks will be coming in fast and furious over the next few weeks. And I expect their solid results to dropkick the companies’ stocks and drive them higher. If you want to get in before the stocks take off and get the most bang for your buck, now is the time to join.
My Platinum Growth Club service comes with my exclusive Model Portfolio. I handpick all my Model Portfolio recommendations from my different stock services – Growth Investor, Breakthrough Stocks and Accelerated Profits — so you can rest assured that you’re always invested in the crème de la crème.
And you really couldn’t be joining at a better time, as I will be hosting my exclusive Platinum Growth Club Live Chat event on Monday. I will be discussing a wide range of topics, including my current market outlook, the fourth-quarter earnings season, the rotation out of growth stocks and into value stocks, as well as my latest thoughts on the Federal Reserve’s inflation problem. During this Live Chat event, I will also answer subscriber questions. If you’re interested, you can sign up now by clicking this link.
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