Stocks Soar As America's Leading Banks Putting Forth Strong Earnings

Stocks Soar As America's Leading Banks Putting Forth Strong Earnings

America’s leading financial companies took the stock market by storm as they posted their quarterly earnings results exceeding analysts expectations this week, all thanks to increased demand for loans, lower credit losses and rise in asset management, investment banking, and initial public offerings.

Morgan Stanley, Citigroup, Bank of America and even the controversial– Wells Fargo posted results hinting at a possible rebound from the pandemic hit in 2020.

Financial Reports Of Third Quarter of American Banks:

1) Morgan Stanley:

Morgan Stanley , the Investment banking company on October 14, posted its earnings report with net revenues coming in at $14.8 billion for the third quarter ended September 30, 2021, while the analysts surveyed Refinitiv pegged its revenue at $14 billion. Net income was $3.7 billion, or $1.98 per share, surpassing the estimate of $1.68 for each share.

The firm’s provision for credit losses on loans and lending commitments came down to $24 million in the quarter ended, compared with $111 million last year, the same time. The decline could be possible because of continued improvement in the macroeconomic environment, the bank said.

2) Citigroup:

Citigroup Inc , a multinational investment bank and financial services corporation headquartered in New York City, performed exceptionally well across the investment banking and equity markets, gauging lower credit costs, and the testament is the earnings report it posted on October 14.

The investment bank posted adjusted earnings of $2.15 per share against the consensus estimate of $1.80 per share. Quarterly revenue came in at $17.2 billion exceeding Street expectations of $17.1 billion, however, a one percent drop could be seen compared with the prior-year revenue. 

Revenues declined 1%as compared to last year’s Q3, including a pre-tax loss of approximately $680 million vis-à-vis sale of the Australian consumer business in Global Consumer Banking (GCB). Setting aside the loss on sales, the company’s revenues increased 3%, largely because of the growth across the Institutional Clients Group (ICG).

Net income of $4.6 billion grew 48% from the prior-year period mainly due to “ lower cost of credit, partially offset by the lower revenues and higher expenses.”

Jane Fraser, Citi CEO, said, “The recovery from the pandemic continues to drive corporate and consumer confidence and is creating very active client engagement as you can see through our strong results in Investment Banking and Equity Markets, both up approximately 40% year-over-year, in addition to double-digit fee growth in Treasury and Trade Solutions as we help our clients reposition their supply chains…” “We also continue to show momentum in deposits and wealth management AUM as well as growing engagement across our digital channels. Overall, our revenues were 3% higher than last year excluding the impact of the sale of our consumer business in Australia.”

3) Bank of America:

Wall Street banking giant Bank of America surpassed market expectations by posting earnings that showed robust revenue growth and lower credit losses.

Q3 Earning per share increased 66.7% to $0.85 per share on a year-over-year basis while the Street estimates were $0.71 per share. Total revenue surged 12.3% to $22.8 billion, exceeding the consensus estimate of $21.7 billion.

Net interest income rose 10% to $11.1 billion on commendable deposit growth and related investment of liquidity. In addition, fee income increased 14% to $11.7 billion due to a rise in asset management, investment banking, and sales and trading revenues.

The provision for credit losses reported a net benefit of $624 million in the quarter, echoing a net reserve release of $1.1 billion. 

Bank of America’s Chairman and CEO, Brian Moynihan, said, “Each day clients entrust us with more of their business, whether it’s new checking and credit card accounts in Consumer; broader and deeper relationships in Wealth Management; increased commercial loan balances; or near-record investment banking activities.”

4) Wells Fargo:

The scandal-stricken investment company- Wells Fargo posted net revenue of $5.1 billion, up 59% from $3.2 billion corresponding to the same quarter a year ago.

The company posted earnings at $1.22 per share topping the consensus estimate of 99 cents per share, according to Refinitiv. Revenue came in at $18.83 billion while the consensus estimate was $18.35 billion.

A $1.65 billion reserve release benefited the company with $1.4 billion after charge-offs, the bank said. Wells Fargo continued to release funds during the pandemic to safeguard against widespread loan losses.

The bank paid a $250 million fine to the Office of the Comptroller of the Currency as it was accused of adopting unsafe or unsound practices concerning home lending loss mitigation programs.

“We are a different company today and the operational and cultural changes we’ve made are enabling us to execute with significantly greater discipline than we have in the past,” CEO Charlie Scharf said Thursday in a statement. “I believe we are making significant progress, and I remain confident in our ability to continue to close the remaining gaps over the next several years, though we may continue to have setbacks along the way.”

Wells Fargo’s net interest income saw a decline of 5%, primarily because of soft demand and elevated prepayments and the impact of lower yields on earning assets.

Wells Fargo bought back 114.2 million shares, or $5.3 billion, of common stock in the third quarter of 2021. The bank also agreed on paying the common stock dividend of 20 cents per share, up from 10 cents per share in the prior quarter.

5) JP Morgan:

The New-York based investment bank, JP Morgan reported total revenue of $30.4 billion beating the analysts’ estimates surveyed by Refinitiv of $29.8 billion. The earnings report released on October 13, printed the credit costs net benefit of $1.5 billion included $2.1 billion of net reserve release and $524 million of net charge-offs. 

Net income came in at $11.7 billion in the third quarter ended, up by $2.2 billion mainly due to the credit reserve releases of $2.1 billion whereas, in the last year, the credit reserve clocked at $569 million. The current quarter brought in an income tax benefit of $566 million received from finalizing the Firm’s 2020 U.S. federal tax return.

Firmwide revenue increased 2% to $30.4 billion, owing to burgeoning fee revenue in the firm’s investment banking and asset and wealth management divisions. 

Earnings per share was $3.74 exceeding the estimate of $3 per share by analysts surveyed by Refinitiv. 

Jamie Dimon, Chairman and CEO, commented on the financial results: “JPMorgan Chase delivered strong results as the economy continues to show good growth – despite the dampening effect of the Delta variant and supply chain disruptions. We released credit reserves of $2.1 billion, as the economic outlook continues to improve and our scenarios have improved accordingly.” “…Our earnings, not including the net reserve release and an income tax benefit, were $9.6 billion.”

How These Stocks Performed Post Earnings Release?

Shares of BofA climbed 4.7% on Thursday, continuing to make an upward move on Friday’s pre-market, jumping as much as 1 percent. NYSE-listed Morgan Stanley jumped about 2.5%, closing Thursday’s intraday close at $101.01. Citigroup’s stock gained 0.77% and Wells Fargo stock fell 1.61%. JP Morgan gained nearly 2 per cent a day after the earnings release. However, overall, the banking stock enjoyed an earnings rally.

The Dow Jones Industrial Average jumped over 500 points while the tech-heavy Nasdaq 100 and S&P 500 finished Thursday’s market higher about 1.9%. Investors looked optimistic on strong weekly jobless claim filings, as unemployment came down to a new Covid-era low of 293,000.

UnitedHealth (UNH), drugstore giant Walgreens (WBA) and Taiwan Semiconductor (TSM) earnings results also cheered the investors. 

Bank stocks have already begun to gain upward momentum, clinging on to the hopes of an economic rebound and rising long-term bond yields, which help to boost lending profits.

A Common Factor: Investment Banks Set Aside Reserves To Meet Unprecedented Defaults

Last year, major banks set aside billions of dollars to lay the groundwork for the potential that consumer and corporate loans may default during the pandemic-induced slump. That, however, did not happen. Credit quality remained high that reflected in banks’ earnings.

Top Wall Street firms are also cashing the speedy pace of dealmaking in Corporate America. Companies saw mergers and many top unicorn startups listed on the bourses that fueled a surge in investment banking fees.

Morgan Stanley saw a 67% increase in investment banking revenue to which CEO James Gorman said, “James P. Gorman, Chairman and Chief Executive Officer, said, “The Firm delivered another very strong quarter, with robust revenues and improved efficiency producing an ROTCE of 20%. We had a standout performance of our integrated Investment Bank and recorded net new assets of $135 billion in Wealth Management. Year-to-date, our successful integrations of E*TRADE and Eaton Vance have supported the growth of $400 billion in net new client assets across Wealth and Investment Management, bringing our total combined client assets to $6.2 trillion.”

JPMorgan Chase CEO Jamie Dimon sees an upbeat outlook about the US economy after the bank reported earnings exceeding forecasts.

Next up is Goldman Sachs  which wraps up the rally of bank earnings before the opening bell on Friday. It is also expected to secure earnings of $10.11 per share, and a revenue of $11.67 billion, 8.3% higher than a prior-year result. Shares of Goldman Sachs have surged about 48% YTD, securing a top performer position in the Dow.