Painting low expectations for 1Q15, Credit Suisse analysts forecast 4% year-on-year earnings growth for the banking sector, led by large cap banks, while they anticipate midcap banks earnings to be closer to flat year-to-year.
Susan Roth Katzke and team at Credit Suisse in their April 7, 2015 research report titled: “1Q15 Earnings Preview” anticipate revenues to be down 1% sequentially with market-related revenue prospects improving quarter to quarter.
Estimates for large and midcap banks
With the first quarter earnings of CS Bank group set to be reported on April 14, the CS analysts forecast 4% year-over-year earnings growth, led by the large cap banks.
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The following table summarizes the key assumptions of the analysts for large cap banks:
However, the Credit Suisse analysts anticipate mid cap banks earnings to be closer to flat year-to-year and down 7% quarter-to-quarter:
The following table depicts the analysts’ key assumptions in their mid cap bank estimates:
The analysts point out that relative to consensus, their estimates are within 1% of the consensus, with variance as captured in the following graph:
The following table details 1Q15 and full year estimates:
NII / NIM could be under pressure
Roth Katzke et al. anticipate net interest income to remain under pressure into the first quarter with incremental NIM compression. For the CS Bank Group, the analysts anticipate a 2% q/q decline in NII with the NIM down 2 bps q/q:
Turning their focus towards loan growth, the CS analysts point out that in 1Q15, the Fed data revealed relatively steady overall growth in loan balances on a q/q basis and up modestly on a y/y basis. They note that for the industry, growth continues to be driven by C&I (+12% y/y) and to a lesser extent CRE (+7% y/y), card (+5%) and consumer (+5%), with residential mortgage growth remaining slow:
The Credit Suisse analysts note credit costs are expected to be up 4% year-to-year and 30% quarter-to-quarter, on a median basis. Tracking master trust data on credit card delinquency and loss rates, they note the data reveals that credit card loss rates should be flat to down:
Among the CS large cap bank group, the analysts favor Bank of America, JPMorgan, Goldman Sachs and Wells Fargo. They anticipate Bank of America to post clean results in the first quarter, as no material surprises in terms of litigation or repositioning charges are expected, while the CS analysts estimate Goldman Sachs’ 1Q15 operating EPS at $4.30 as against the Street at $4.16.
In the mid cap bank space, the analysts prefer Keycorp and BB&T Corporation. They anticipate Keycorp’s 1Q15 reported EPS at $0.26, which is in line with street estimates, while they estimate BB&T Corporation’s 1Q15 operating EPS at $0.71 compared to street estimates of $0.70.