Friday brings the start of reports for bank earnings in 2Q 2017. Citigroup, JPMorgan Chase and Wells Fargo are all scheduled to release their second-quarter results before opening bell, and analysts aren’t expecting much, despite the signs that the U.S. consumer is starting to recover.
Bank Earnings In 2Q 2017
The general view is that banks are running on empty after having cut every expense they can cut during the last several lean years. Investors are also starting to come to terms with the reality that the “Trump bump” or “reflation trade” just isn’t happening because President Donald Trump’s administration hasn’t been able to complete any of the reforms they expected him to.
Bank stocks have been rallying in recent weeks, as the House proposed a plan to roll back the Dodd-Frank Act, which would reduce government regulation of banks. Most of the major banks also underwent their most recent stress test by the Federal Reserve, which is designed to test whether they would be able to survive a fresh financial crisis with enough capital to continue lending to businesses and consumers. For the first time in seven years, all the banks that underwent stress tests passed them, and as a result, some of the largest banks raised their capital return plans dramatically.
Seth Klarman: Investors Can No Longer Rely On Mean Reversion
"For most of the last century," Seth Klarman noted in his second-quarter letter to Baupost's investors, "a reasonable approach to assessing a company's future prospects was to expect mean reversion." He went on to explain that fluctuations in business performance were largely cyclical, and investors could profit from this buying low and selling high. Also Read More
Despite all the positive news surrounding the nation’s major banks, consensus estimates for some bank earnings in 2Q 2017 have been reduced.
Citigroup Q2 earnings preview
Analysts are expecting Citigroup to report $1.21 per share in earnings on $17.4 billion in revenue. In last year’s second quarter, the bank reported $1.24 per share in earnings on $17.55 billion in revenues.
Bank stocks have had their ups and downs since the election, although Citigroup has been the best stock performer so far year to date as it gained more than 12%. The bank was one of those that announced significant increases in share repurchases and dividends last month after passing its annual stress test. This year also marks an important one for Citigroup because it has scheduled its first investor day in nine years, since before the financial crisis. Friday’s earnings call is expected to offer a sort of preview before the July 25 investor day.
JPMorgan Chase Q2 earnings preview
Wall Street is expecting JPMorgan Chase to post $1.59 per share in earnings on $25 billion in revenue. In last year’s second quarter, the bank posted $1.55 per share in earnings on $25.21 billion in revenue.
Although JPMorgan Chase hasn’t performed as well as Citigroup year to date, its stock surged by more than 47% immediately after the election. Greater market volatility in recent weeks has helped boost trading revenues at JPMorgan Chase. Like Citigroup, JPMorgan Chase also announced major increases in dividends and share buybacks last month following its annual stress test.
CEO Jamie Dimon often discusses broader macroeconomic factors during his earnings calls, so the markets will be listening closely for his insight, particularly in terms of consumer confidence and financial health.
Wells Fargo Q2 earnings preview
Wall Street is looking for Wells Fargo to post $1.01 per share in earnings, which is flat with last year, on $22.5 billion in revenue, compared to $22.16 billion in revenue in last year’s second quarter.
Wells Fargo is looking to put another legal battle behind it, as a federal judge approved the bank’s $142 million proposal to settle with customers in a class action case involving customers whose information was used to create fake accounts in their names.
Shares of Wells Fargo surged in late February and early March but have since retreated to about where they were at the beginning of the year.