US Fourth Quarter Earnings Season; A look into Bulge Bracket Banks

  • Jan 17, 2020 GMT
  • Team Kalkine
US Fourth Quarter Earnings Season; A look into Bulge Bracket Banks

The US earnings reporting season is set to kick off for the fourth quarter. According to media reports, this earnings season is arriving with low expectation for profit growth at a time when markets are making new highs frequently.

Market experts are expecting that stock could march higher further, and corporations might beat the lower forecasted earnings. Some are expecting a 2 per cent beat in the 4Q earnings, considering the resets in the estimates.

And, if the earnings reports were to miss the downgraded forecasts, it could turn to be a consequent second quarter of profit declines. In the third quarter, the earnings declined 0.3 per cent, and earnings are poised to decline by 0.6 per cent for the S&P 500, according to a market data provider.

Some experts also expect that offensive sectors might take over defensive sectors. According to a market data provider, the financial sector earnings are tipped to see a rise of around 11 per cent, which is lower than around 12 per cent at the start of the year.

On Tuesday, in the US, Citigroup, JP Morgan, Wells Fargo, Delta Airlines are set to kick-off the reporting season, followed by Goldman Sachs, Bank of America and BlackRock on Wednesday.

A few market experts also noted that there is a possibility that earnings season could turn to be a catalyst for a sell-off. The forward P/E of the S&P 500 was hovering around 19x, a similar level that was noticed in January two years back, which was prior to the last big correction of February 2018.

Meanwhile, some experts also believe that markets could march higher further, but it would need to see better profits compared to the forecasts.

Considering the environment, which is underpinned by lower interest rates and policy support, the profits might not need to be robust for markets to march higher. And, modest gains in earnings could keep the bulls going.

In the meantime, the Federal Reserve has been providing liquidity support to the markets with the ongoing Treasury Bill purchases.

US Bulge Bracket Banks:

Citigroup Inc.

Citigroup reported a net income of USD 5 billion for the fourth quarter of 2019, equating to USD 2.15 per diluted share, as against net income of USD 4.3 billion and diluted per share earnings of USD 1.64 in the fourth quarter of 2019.

Revenue for the fourth quarter reached USD 18.4 billion compared to USD 17.1 billion in the previous corresponding period.

For FY 2019, the bank reported net income of USD 19.4 billion on revenue of USD 74.3 billion as against net income of USD 18 billion on revenue of USD 72.9 billion in the previous year.

Its book value per share was USD 82.9, which increased 10 per cent over the previous year, and the bank’s CET1 capital ratio was 11.7 per cent, which increased over the previous quarter as a result of a reduction in risk-weighted assets.

According to NASDAQ, the consensus expectation of the fourth quarter EPS for the bank was USD 1.82, and the bank has posted EPS of USD 2.15.

JP Morgan Chase & Co.

JP Morgan delivered fourth quarter reported revenue of USD 28.3 billion, and a record full-year net income of USD 36.4 billion. On a managed basis, the net income for the period was USD 8.5 billion, and net revenue was USD 29.2 billion.

Also, the net interest income was USD 14.3 billion, slightly down by 2 per cent due to the impact of lower rates, which was largely offset by balance sheet growth income from CIB Markets.

Meanwhile, the non-interest revenue was USD 14.9 billion, up 21 per cent, driven by fixed income, equity markets, asset and wealth management, home lending and auto. And, noninterest expense was USD 16.3 billion, up 4 per cent due to higher volume- and revenue-related expense.

According to NASDAQ, the consensus expectation of the fourth quarter EPS for the bank was USD 2.32, and the bank has posted EPS of USD 2.57.

Wells Fargo

Wells Fargo reported fourth quarter net income of USD 2.9 billion, equating to a diluted EPS of USD 0.60, which includes an impact of litigation accruals of USD 0.33 per share.

Operating losses of USD 1.9 billion were attributed to USD 1.5 billion in litigation accruals for a variety of issue, which includes previously disclosed retail sales practices.

Revenue of USD 19.9 billion was down from USD 21 billion in the fourth quarter of 2018, and the net interest income of USD 11.2 billion was down 1.4 billion while the non-interest income of USD 8.7 billion was up by USD 324 million.

Further, the non-interest expense of USD 15.6 billion was up by USD 2.3 billion due to higher operating losses. Average loans of USD 956.5 billion increased by USD 10.2 billion or 1 per cent, and average deposits of USD 1.3 trillion was up USD 53 billion or 4 per cent.

The full-year net income of the bank was USD 19.5 billion, equating to a diluted EPS of USD 4.05.

According to NASDAQ, the consensus expectation of the fourth quarter EPS for the bank is USD 1.12, and Wells Fargo has reported an EPS of USD 0.33.

Goldman Sachs

The Goldman Sachs Group recorded net revenues standing at USD 36.55 billion and net earnings standing at USD 8.47 billion for the year closed 31 December last year. In the fourth quarter, the net revenues were USD 9.96 billion and net earnings were USD 1.92 billion.

For FY 2019, the diluted EPS of the bank was USD 21.03 as against a diluted EPS of USD 25.27 in the previous year. And, the fourth quarter diluted EPS was USD 4.69 as against USD 6.04 in the fourth quarter 2018.

In 4Q 2019, the bank has recorded a net provision for litigation and regulatory proceedings of USD 1.24 billion, equating to an impact of USD 3.16 on diluted EPS, and 1.5 percentage points impact on return on equity.

According to NASDAQ, the consensus expectation of the fourth quarter EPS for the bank was noted at USD 5.18, and Goldman Sachs has reported the fourth quarter EPS of USD 4.69.

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