JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) reported better-than-expected fourth-quarter earnings early Friday, amid the Federal Reserve’s plan to raise interest rates in the coming months and omicron’s impact on the economy. JPM stock and Citigroup fell in premarket trade while Wells Fargo rose.
The reports come as expectations for Federal Reserve policy changes send bond yields and interest rates higher. Higher interest rates benefit banks, which make more money on the loans they extend. CFRA Research analyst Kenneth Leon says in a recent note to clients that consumer loan activity is improving but is still below pre-pandemic levels. In March 2020, bank consumer loans peaked at $859 billion and then fell to a low of $743 billion in April 2021. The December 2021 bank consumer loan balances are just under $800 billion.
Meanwhile, big banks will also be affected by a slowdown in consumer spending as inflation spiked in Q4 and omicron ripped through the country.
“The near term brings uncertainty and some weakness about the path for consumer spending, due to the seasonal slow period and potential omicron effects,” Leon said. “We think this may be transitory if the omicron variant can be put under control, especially as we head into the 2022 spring season.”
Investment activity continues to be brisk. Equity capital markets activity was up 19% year over year to $1.3 trillion in 2021, marking the strongest period since records began in 1980, Leon wrote.
“Equity trading volumes and transaction fees have increased significantly with greater investor participation, with equity inflows and active trading from retail investors,” Leon wrote. “We think investment banks could realize 8%-10% plus growth year over year in debt underwriting fees from new issuances, driven by high yield corporate bond issuances.”
Elsewhere, big banks will have less cash reserves to release into bottom lines this quarter. They had built up huge cash reserves at the start of the pandemic, anticipating loan repayment defaults as folks lost their jobs. However, many of those reserves were not needed and released back into bottom lines over the last several quarters. As a result, there are fewer of those funds to bring over this quarter to boost profits.
Estimates: FactSet analysts saw JPMorgan earnings of $3 per share, a 21% drop from the year-ago period. Revenue was seen coming in at $29.78 billion, a 1.3% decline from last year.
Results: JPMorgan earnings per share dipped to $3.33 a share, while revenue edged up to $30.35 billion.
JPMorgan earnings got a boost from releasing $1.3 billion from loan loss reserves. Lending picked up, especially in its wealth management division.
Bank Stocks: JPM Stock
Shares have gained over the last several days, after gapping up above their 50-day line on Jan. 4. JPM stock’s relative strength line is trending upward. Its RS Rating is a 77 out of a best-possible 99. Its EPS Rating is 79.
Wells Fargo Earnings
Estimates: Analysts expected Wells Fargo earnings of $1.04 per share, a 63% surge from the same period last year. Views are for revenue of $18.79 billion, a 4.8% increase.
Results: GAAP earnings came in at $1.38 a share, while revenue jumped to $20.86 billion.
Wells Fargo Stock
Shares rose 2.7% to 57.50 early Friday. WFC stock is extended after an early-January breakout above a flat-base buy point of 52.66. WFC stock has an RS Rating of 95 and an EPS Rating of 68. Its relative strength line is trending upward, reaching highs not seen since last April.
Estimates: Analysts saw Citigroup earnings per share of $1.72, 16.8% below the year-ago quarter. Revenue was expected to increase 2.1% to $16.85 billion.
Results: Citigroup earnings per share edged higher to $1.99 adjusted. Revenue climbed to to $17.02 billion. Investment banking revenue leapt 43%.
Citigroup earlier Friday agreed to sell banking operations in four Southeast Asian countries for $2.7 billion. Its Indonesia, Malaysia, Thailand and Vietnam operations are being acquired by Singapore-based United Overseas Bank.
Shares dipped 1.7% to 66.60 in premarket trade. Citigroup stock is climbing toward a double-bottom buy point of 74.74. Shares clawed back above their 50-day line after bottoming out in December.
Citigroup’s relative strength line is moving upward again after slumping for several weeks. Its RS Rating is still just 39, while its EPS Rating is a solid 89.
Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
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