Proactive Investors - Some of the largest financial institutions in the United States will kick off first quarter earnings season tomorrow.
Investors will have a keen eye on the banking sector this quarter after big and small banks alike came under pressure following the collapse of Silicon Valley Bank and Signature Bank in March.
Set to report their results before the opening bell on Friday are JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C). Here’s what to expect from each bank.
JPMorgan
For the first quarter, JPMorgan is expected to report earnings per share of $3.40 on revenue of about $35.7 billion. In the year-ago quarter, the bank posted earnings per share of $2.63 on revenue of $31.6 billion.
CMC Markets UK chief market analyst Michael Hewson noted that when JPMorgan reported its 4Q earnings in January, it painted a cautious outlook for the US economy, despite a strong end-of-year showing.
He noted that, in the fourth quarter, higher interest rates had helped the bank boost its net interest income by 48% to $20.3 billion, and “it is here where we’ve seen the real revenue and profit gains.”
“These higher rates appear to have come at a cost elsewhere in the US banking system, the effects of which may well continue to be felt over the rest of this year,” he said.
Hewson also noted that the bank set aside a rather large reserve build of $1.4 billion, as a result of a big increase in credit costs to $2.3 billion on the back of a deterioration in the economic outlook, with JPMorgan saying that they have a baseline assumption of a mild recession.
“These concerns can only have risen further in light of recent events with the main focus on this US bank earnings season on how much the recent turmoil has hit the sectors profit numbers, not only in terms of the impact of loan demand but also in terms of deposit inflow,” he said.
Wells Fargo
Wells Fargo is expected to post earnings per share for the first quarter of $1.14 on revenue of about $20 billion, compared to earnings per share of $0.88 on revenue of $17.6 billion for the same period in 2022.
Wells Fargo is another US bank that will have seen some deposit inflow as a result of the recent turbulence in the US banking sector, Hewson noted.
“A much more domestically focused bank, the shares saw a much bigger decline on the back of the recent turmoil sliding to two-year lows before rebounding,” Hewson said.
He said that back in January the bank reported a disappointing set of 4Q numbers, however, this was largely expected due to various legacy issues around litigation and regulatory issues.
Home lending, one of the bank's core businesses, was lower by 57% due to higher interest rates, and a more challenging housing market, Hewson said.
“On the outlook, there is evidence of a worsening outlook on consumer credit, as delinquency rates start to edge higher, while write-offs rose to $525 million,” he added.
Citigroup
At Citigroup, some deposit inflow as US customers steer their funds towards the bigger and safer US banks is also expected, according to Hewson.
“The share price has seen a modest recovery over the last couple of weeks, but the gains have been limited,” he said.
He continued: “When the bank reported in 4Q they echoed their peers by warning on the various risks to the outlook,” noting weakness in equities trading and investment banking during the quarter.
For the first quarter, Citigroup is expected to post earnings per share of $1.17 on revenue of about $20 billion. For 1Q 2022, it reported earnings per share of $2.02 on revenue of $19.2 billion.