What You Should Know About Tomorrow's Bank Earnings Deluge

The second-quarter reporting season is upon us. Overall, expectations concerning the quarter are upbeat. Financials, being early reporters, will be prevalent Friday, with a slew of earnings scheduled to report throughout the day.

Q2 Reporting Season: A Preview

Factset expects the blended earnings growth rate for the S&P 500 companies at 6.5 percent. The firm expects nine of the eleven sectors to report year-over-year earnings growth for the quarter, with the energy sector being the star performer.

Meanwhile, S&P Capital IQ expects second quarter earnings growth of 6.2 percent, led by energy, financials and IT, according to CNBC Consequently, the operating earnings per share for the trailing 12 months would increase to a record $123.61 a share in the second quarter.

Specifically, Factset expects the financial sector to report the third highest year-over-year earnings growth, with 6-percent growth. The insurance sector is expected to outperform, contributing to the bulk of earnings growth of the sector. Excluding the insurance sector, earnings growth of the sector would drop off to 2.8 percent.

Schedule Of Financial Earnings Friday (July 14, 2017)

Citigroup Inc C: 8 a.m. ET, with the conference call at 11:30 a.m. ET.
JPMorgan Chase & Co. JPM: 7 a.m. ET, with the conference call scheduled at 8:30 a.m. ET.
PNC Financial Services Group Inc PNC: Before the market open, conference call scheduled at 9:30 a.m. ET.
Wells Fargo & Co WFC: 8 a.m. ET, with conference call scheduled for 10 a.m. ET.
First Republic Bank FRC: Before the market open, conference call scheduled at 10 a.m. ET.

Analysts' Expectations (EPS Vs. Year-Ago/Revenue Vs. Year-Ago)

Citigroup: $1.21 ($1.24)/$17.37 billion ($17.55 billion).
JPMorgan: $1.59 ($1.55)/$25.02 billion ($25.21 billion).
Wells Fargo: $1.01 ($1.01)/ $22.47 billion ($22.61 billion).
First Republic: $1.10 ($0.97)/ $666.92 million ($576.93 million).

Weighing In The Factors Impacting Performance

With the Fed embarked firmly on the interest rate normalization path, the financial firms stand to gain from higher interest rates. Especially for banks, interest earned on deposits is the major revenue earner.

Thus far, the near-zero interest rate environment had severely impaired the performance of banks. JJ Kinahan, chief strategist at TD Ameritrade Holding Corp. AMTD told Benzinga this week, the tough interest rate environment and the shrinking margins between short- and long-term interest rates could hurt net interest income of banks.

The sector can also take heart from the fact that, this time around banks cleared the recent stress tests by the Federal Reserve, with the apex bank approving their capital spending plan.

That said, given the lukewarm economic recovery, lending has not taken off in a big way, as companies remain circumspect. M&A activity has also remained lackluster. Trading revenues are also seen as a sore spot in the second quarter.

James Mitchell of Buckingham Research Group said in a recent note that he expects industry-wide FICC trading revenue to decline 20 percent, worse than the 6-percent drop he saw earlier, flat equity trading revenues and a 4-percent increase in investment banking fees.

Stock Performance

Since the start of the second quarter to date, the financial stocks have fared fairly well. Compared to the 3.41 percent advance by the S&P 500, Citi has gained 12.42 percent, JP Morgan 5.62 percent, PNC Financial 5.81 percent and First Republic 8.91 percent, while Wells Fargo has slid 0.74 percent.