Earnings season kicks into high gear on Wall Street this week, with five major U.S. banks -- JPMorgan Chase & Co., Wells Fargo & Co., Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. -- slated to post quarterly financial results. A sixth bank, Morgan Stanley, is scheduled to disclose its results next week.
Standard & Poor's 500 earnings are forecast to have declined by 2.8 percent during the first-quarter from a year ago, marking the worst quarterly results since 2009, Thomson Reuters data indicate. The sharp decline in earnings growth is driven by two primary factors: the precipitous drop in oil prices since June and the strengthening U.S. dollar.
Even so, analysts expect the financial sector had a relatively uneventful first quarter.
“You might see some language about concerns regarding the Federal Reserve’s interest rate policy, or a focus on trading revenues from the major banks, but overall, it ought to be a relatively quiet quarter from the financial sector,” said Eric Mustin, vice president of the ETF Trading Solutions group at WallachBeth Capital.
Looking ahead this year, the financial sector looks set to benefit as the Fed is expected to raise interest rates either at its June or September meeting. A hike in interest rates would improve the net interest margins of large banks. "Because they’ll use higher rates as a reason to charge more for loans,” Mustin said.
However, concern in the industry is over the timing of the central bank’s first rate hike and at which meeting it will come -- a three-month (or one-quarter) difference. “People will read very closely into any forward-looking statements from the major banks [this week], looking to see if they are saying they anticipate net interest margins to improve in the second quarter because of a rise in interest rates. That would be taken very seriously,” Mustin said.
Here is a deeper look at the financial institutions that will be reporting soon:
JPMorgan Chase & Co. (NYSE:JPM), the biggest U.S. bank by assets, is slated to announce first-quarter results before the U.S. financial markets open Tuesday. Investment giant JPMorgan Chase saw its fourth-quarter profit tumble 6.6 percent due to $1.1 billion in legal expenses.
Wall Street expects JPMorgan Chase to post net income of $5.3 billion, or earnings per share of $1.38, on revenue of $24.4 billion, analysts polled by Thomson Reuters said. That compares with a profit of $4.9 billion, or earnings per share of $1.28, on revenue of $23.86 billion a year ago.
Shares of JPMorgan Chase have shed 0.46 percent since January, to around $62.17 per share.
Wells Fargo & Co. (NYSE:WFC), the fourth-largest U.S. bank, posted fourth-quarter earnings in line with Wall Street expectations in January as it saw stronger loan growth.
Analysts expect Wells Fargo on Tuesday to report net income of $5.15 billion, or earnings per share of 98 cents, on revenue of $21.24 billion, compared with a profit of $5.61 billion, or earnings per share of $1.05, on revenue of $20.63 billion a year earlier.
Shares of Wells Fargo have dipped 0.19 percent this year, to trade around $54.60.
Bank of America
Bank of America Corp. (NYSE:BAC) disappointed investors in January after the Charlotte, North Carolina, company reported an 11 percent drop in fourth-quarter profit, largely due to lower revenue from fixed-income trading. Revenue from that division fell more than 20 percent, to $1.46 billion, driven by weakness in credit and mortgage trading.
Ahead of the market open Wednesday, Bank of America is forecast to report net income of $3.35 billion, or earnings per share of 29 cents, on revenue of $21.5 billion, compared with a loss of $514 million, or an earnings-per-share loss of 5 cents, on revenue of $22.7 billion a year ago.
Bank of America's stock has tumbled more than 11.7 percent this year, to around $15.80 ahead of the company’s latest earnings announcement.
Investment bank Goldman Sachs Group Inc. (NYSE:GS) saw profit in its bond trading business, a traditionally strong unit, plunge 29 percent in the fourth quarter due to multiple bouts of market volatility, driven by factors including oil price declines and uncertainty about global economic growth.
Thursday, Goldman Sachs is forecast to report net income of $1.904 billion, or earnings per share of $4.21, on revenue of $9.34 billion, compared with a profit of $1.949 billion, or earnings per share of $4.02, on revenue of $9.33 billion a year ago.
Shares of Goldman Sachs have added more than 1 percent since January, to trade around $196 ahead of the company’s earnings announcement.
Citigroup Inc.’s (NYSE:C) fourth-quarter earnings plunged 86 percent due to a $3.5 billion charge from legal costs related to an investigation into the bank manipulating the foreign-exchange market. The legal fees compare to $1 billion during the same period a year earlier. The bank’s effective tax rate was 72 percent in the fourth quarter, a jump from 32 percent in the year-ago quarter, driven by a significantly higher portion of non-tax-deductible legal expenses.
Thursday, Citigroup is expected to post net income of $4.23 billion, or earnings per share of $1.39, on revenue of $19.8 billion. That compares with a profit of $3.76 billion, or earnings per share of $1.23, on revenue of $20.1 billion a year ago.
Citigroup shares have lose more than 2.7 percent this year, to trade around $52.
Morgan Stanley (NYSE:MS), the sixth-biggest U.S. bank by assets, reported lower-than-expected quarterly revenue and profits in the fourth quarter, held back by its trading operations in fixed income, currencies and commodities due to market volatility last fall. Morgan Stanley’s adjusted revenue for the unit came in at roughly $599 million, down 14 percent from $694 million during the same period a year earlier.
The firm also announced in January it will pay 39 percent or less of revenue in bonuses to employees this year from its institutional securities business, a much smaller portion compared with up to 80 percent of its bonuses in the past.
Ahead of the opening bell April 20, Morgan Stanley is expected to post net income of $1.55 billion, or earnings per share of 78 cents, on revenue of $9.18 billion, compared with a profit of $1.45 billion, or earnings per share of 74 cents, on revenue of $8.8 billion during the same year-ago period.
Morgan Stanley’s stock price has dropped more than 5 percent this year to average $36.