Earnings Preview: Citigroup Inc (C) & Wells Fargo & Co (WFC)

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Wells Fargo & Co (NYSE:WFC) will be coming out with its first quarter earnings report tomorrow. A report from Macquaire lowers its EPS estimates for the first quarter to $0.88 and $3.59 from $0.89 and $3.60 prior, owing to a lower mortgage banking revenues. The report from the research firm up it’s 2014/15 EPS to $3.83/$4.25 from $3.80/$4.19 prior backed by aggressive share buyback from Wells Fargo & Co (NYSE:WFC).

mortgage application volume index-

The report expects mortgage banking to be down LQ on lower volumes/margin. It expects a 12 percent LQ decline in mortgage banking revenues owing to a 16 percent LQ decline in volumes and a 43 bps decline in gain on sale margins. The estimates from the reports look moderate considering application volumes fell 4 percent LQ and spreads declined by 23 bps in the first quarter.

The report expects volumes and margins to decline further, and, therefore, how the bank manages its costs will be an important item to look out for. For LQ NIM, reports expect a marginal decline in the first quarter owing to string growth in loans and purchase of securities contributing to liquidity. Fargo LQ expenses are expected to rise given higher seasonal personnel expenses.

Citigroup Inc (NYSE:C) is executing its ‘back to basics’ banking strategy, which is evident from the redefined targets (10 percent-plus ROTCE and 0.90-1.10 percent ROA), says a report from Barclays PLC (NYSE:BCS) (LON:BARC). The group is expected to enhance the capital return in the coming time as it has been authorized to repurchase up to $1.2 billion shares.

An important item to watch in the upcoming earnings report is the reserve releases in NA mortgage, where “continued economic improvement and optimistic housing data suggest releases could be a near term event, eventually aiding capital, asset mark creditability, and DTA recognition”, says report.

NA mortgage

Backed by the fourth quarter results, first quarter is expected to have a stable balance sheet as growth in Citicorp compensates for lower Citi Holdings, marginally lower net interest margin, higher fee income etc. The report expects the group to report an EPS of $1.04, which is $0.11 up from the previous estimate.

A higher expected EPS reflects stronger revenue generation in Securities & Banking. The earnings report card from Citigroup Inc (NYSE:C) is expected to include elevated restructuring and legal expenses. The report also raises its full year 2013 estimate $0.15 to $4.40.

CEO Michael Corbat is expected to provide clear details on the redefined targets (10 percent-plus ROTCE and 0.90-1.10 percent ROA) and on 50 percent efficiency ratio targets for 2015.

Another watchful item will be an update on potential reserve releases in NA Mortgage and details on the restructuring plan, which is expected to save about $900 million in 2013 and $1.1 billion in 2014. Citi will report its earnings on 15th April

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