Earnings season commences on Wall Street this week with six major U.S. banks slated to post quarterly financial results, including JPMorgan Chase & Co., Wells Fargo & Company, Bank of America Corporation, Citigroup Inc. and Goldman Sachs Group Inc., followed by Morgan Stanley next week.
For the final quarter of 2014, overall corporate earnings are forecast to grow 4 percent compared with a year earlier, according to analysts polled by Thomson Reuters. Ahead of Monday’s market open, only 21 S&P 500 companies had reported for the quarter, and 62 percent beat earnings per share consensus, while 24 percent have missed and 14 percent have matched, according to Estimize's research.
Analysts don’t expect massive surprises from the financial sector.
"During the last two quarters, the banks have beat on [earnings per share] but missed on revenue. Sadly, it’s going to be a lot of the same again. Because of that, we’re going to have a lot of volatility in the financial markets for some time to come," Josh Van Dress, chief investment officer at Able Capital Management, said.
Looking ahead into 2015, the financial sector looks set to benefit as the Federal Reserve is expected to raise interest rates roughly sometime before summer.
“Financials did decently in 2014, but they have more upside this year, especially if interest rates start to go up, which means more interest money for them -- whether its mortgages or deposits,” J.J. Feldman, managing director and portfolio manager at Miracle Mile Advisors, said. “This finally could be the year that everyone’s been talking about for the last five years where rates actually go up.”
Below is a deeper look at the financial institutions reporting this week.
Before U.S. financial markets open Wednesday, investment giant JPMorgan Chase & Co. (NYSE:JPM) is slated to announce fourth-quarter results. Wall Street expects JPMorgan Chase to post net income of $5.17 billion, or earnings per share of $1.36, on revenue of $24.01 billion, according to analysts polled by Thomson Reuters. That compares with a profit of $4.94 billion, or earnings per share of $1.30, on revenue of $24.11 billion a year ago.
This earnings season is the first since regulators in the U.S., Britain and Switzerland slapped five major banks with $3.4 billion in fines in November for attempting to manipulate foreign exchange markets. Following a 13-month probe, the U.K. Financial Conduct Authority, the Swiss Financial Market Supervisory Authority and the U.S. Commodity Futures Trading Commission said UBS, Citigroup Inc., JPMorgan Chase & Co., Royal Bank of Scotland, HSBC Holdings and Bank of America agreed to pay settlements.
JPMorgan Chase was the first U.S. bank to settle the suit, which was originally filed in November 2013. Analysts expect to hear more on Wednesday about how the fines will impact the company’s fourth quarter. “There’s plenty of skeletons left in Jamie Dimon’s bag of tricks, so to speak,” Van Dress said.
During the past three months (Oct. 15 to Dec. 31), JPMorgan Chase’s stock price has increased 1.03 percent, to $60.23 per share.
Wells Fargo & Company (NYSE:WFC), the fourth-largest U.S. bank, saw a slight rise in income at its mortgage banking unit during the third quarter, which had previously weighed on results over the past year. Earnings came in line with analyst estimates, as profit rose to $5.73 billion during the third quarter. The bank posted earnings of $1.02 per share, excluding items, while revenue increased to $21.21 billion from $20.48 billion a year earlier.
Analysts expect Wells Fargo on Wednesday to report net income of $5.4 billion, or earnings per share of $1.02, on revenue of $21.20 billion, compared with a profit of $5.37 billion, or earnings per share of $1, on revenue of $20.67 billion a year earlier.
Shares of Wells Fargo have jumped 3.80 percent, to $53.13, since the company last reported earnings.
Bank Of America
Bank of America Corporation (NYSE:BAC) shocked investors in November after the company lowered its third-quarter profit by $400 million as part of a revision, citing legal expenses related to its foreign exchange business.
The Charlotte, North Carolina-based company said it was engaged in “separate advanced discussions with certain U.S. banking regulatory agencies” to resolve matters related to its foreign exchange business. As a result, the company recorded a $400 million charge and adjusted its third-quarter results to a net loss of $232 million, or 4 cents per share. Previously, Bank of America on Oct. 15 reported a third-quarter loss of $168 million, or 1 cent per share, on revenue of $21.4 billion.
Ahead of the market open Thursday, Bank of America is forecast to report net income of $3.64 billion, or earnings per share of 33 cents, on revenue of $21.33 billion, compared with a profit of $3.18 billion, or earnings per share of 29 cents per share, on revenue of $21.49 billion a year ago.
Bank of America's stock has gained 2.51 percent, to $17.14, since the company's last earnings announcement.
Citigroup Inc. (NYSE:C) also adjusted its third-quarter earnings in October to $2.8 billion, or $600 million less than it had previously reported, also citing litigation costs due to "rapidly evolving regulatory inquiries." The bank also disclosed it was subject to foreign exchange market probes.
Thursday, Citigroup is expected to post net income of $339.12 million, or earnings per share of 10 cents, or revenue of $18.93 billion. That compares with a profit of $2.46 billion, or earnings per share of 77 cents, on revenue of $17.78 billion a year ago.
Since its last earnings release, Citigroup shares have risen 1.16 percent, to $53.14.
Investment bank Goldman Sachs Group Inc. (NYSE:GS) earned stronger-than-expected profits during the third quarter, but investors expressed concerns over sustainable returns. Friday, Goldman Sachs is forecast to report net income of $2.24 billion, or earnings per share of $4.68, on revenue of $7.9 billion, compared with a profit of $2.25 billion, or earnings per share of $4.60, on revenue of $8.78 billion a year ago.
Goldman’s third quarter earnings rose to $2.24 billion, or $4.57 a share, compared with $1.52 billion, or $2.88 a share, in the period a year earlier. Analysts had expected the bank to earn $3.21 a share, according to analysts polled by Thomson Reuters.
Shares of Goldman Sachs have jumped 3.56 percent, to trade around $188.48 per share, since the company released third-quarter earnings.
Morgan Stanley (NYSE:MS), the sixth-biggest U.S. bank by assets, saw its profit soar 87 percent in the third quarter after the bank's trading and wealth management businesses profited from increased client activity.
Ahead of the opening bell on Tuesday, Jan. 20, Morgan Stanley is expected to post net income of $1.18 billion, or earnings per share of 68 cents, on revenue of $8.39 billion, compared with a profit of $1.02 billion, or earnings per share of 70 cents, on revenue of $8.2 billion during the same year-ago period.
“We believe Morgan Stanley will realize higher growth from its strategy in wealth management with growing assets under supervision. Compared to other global banks, Morgan Stanley has a differentiated mix of businesses that are less exposed to market trends, especially in trading activity,” Ken Leon, equity analyst at S&P Capital IQ, said in a research note last week.
Morgan Stanley’s stock price has soared 11.02 percent, to $35.94, since the company last announced earnings.