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Bank Earnings: How Much Did Low-Rate Climate Hurt Q3?

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October 13, 2015
Bank Earnings: How Much Did Low-Rate Climate Hurt Q3?

We may get a clearer picture of how financial matters are shaking out for consumers and businesses alike when some of the nation’s largest banks turn in their Q3 results this week, pushing earnings season into full throttle after a quarter agitated by global economic pressures and lingering interest rate uncertainty.

As with other industries, year-over-year revenue comparisons could disappoint for the banks.

Up first is JPMorgan Chase (JPM), which reports after the closing bell Tuesday, followed by Bank of America (BAC) and Wells Fargo (WFC) ahead of Wednesday’s morning bell. Citigroup (C) and Goldman Sachs (GS) turn in their results ahead of Thursday’s trading session.

Financial stocks started the year off on sound footing but lost some ground by Q3 as stock performance and company projections dropped. It was a move that most Street analysts tied to the Federal Reserve’s September pass on the first interest rate hike since 2006. Higher rates tighten net-interest margins for most lending-focused banks. Investors are also worried about trading revenues potentially trampled by high levels of volatility. Add to that the much-reported squeeze in mortgage originations, according to lending industry data, and a slowdown in home-equity loans. All told, Street analysts’ outlook for the big banks isn’t exactly rosy.

Long-time respected analyst Dick Bove, vice president of equity research at Rafferty Capital Markets, said this on CNBC about bank earnings on Monday: "The problem the big banks have is that they have big capital markets businesses. They do trading, investment banking, investment management, and none of those businesses did well in the third quarter."

Does that, in fact, leave investors vulnerable to an upside surprise? The S&P Financial Index is off 5.6% year-to-date, a deep drop compared with the S&P 500 market index, which is off 2.2% in the same span.

Revenue Watch

Analysts are forecasting a slight year-over-year earnings increase on depressed revenues for JPM. Thomson Reuters analysts project earnings of $1.38 per share on revenue of $23.7 billion. A year ago, JPM turned in $1.36 a share profit on revenue $25.2 billion. JPM stock is mostly flat on the year, off 1% since January (figure 1).

JPMorgan-stock-chart

FIGURE 1: TOUGH TO BE A BANK JUST NOW?

JP Morgan Chase (JPM) shares charted on the new-look thinkorswim® platform. JPM, near flat for the year, has climbed from the $50.07 low hit during August market turmoil. Data source: Dow Jones Indices. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

BAC, which topped Wall Street forecasts in a losing year-ago quarter, is projected to report $0.35 a share on revenue of $20.9 billion. That compares to a loss of $0.01 a share on revenue of $21.4 billion a year ago. The price of BAC stock has lost some 12% this year.

WFC earnings are expected to rise moderately to $1.05 a share on revenue of $21.8 billion compared with last year’s profit of $1.02 per share on $21.2 billion in revenue. WFC stock is off some 4% on the year.

All That and Chips, Too

Also on the docket for Tuesday after-the-bell earnings results is the world’s biggest chip maker Intel Corp. (INTC). According to media and analyst reports, the challenging and sluggish PC market has many in this sector in a deep rethink about how expand business in data center, memory, and the Internet of Things, referred to as IoT. Count Intel among them.

Analysts reporting to Thomson Reuters are looking for per-share profits of $0.59 on revenue of $14.24 billion. That’s coming after a slight decline in profits in Q2, down 3% to $2.7 billion with per-share results flat at $0.55. Q2 revenue dropped 5% to $13.2 billion.

Intel-stock-chart

FIGURE 2: FEELING CHIPPER?

Intel (INTC) is charted on the new-look thinkorswim® platform. Shares of INTC have been climbing steadily since hitting a 52-week low in August, now up some 25% from that point, but are still off nearly 15% from its 52-week high of $37.67 hit in early December 2014. Data source: Dow Jones Indices. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

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