Market Overview

JPMorgan Analysts Brace For Tepid Q4 Earnings From Big Banks On Weak Interest Income

Share:
JPMorgan Analysts Brace For Tepid Q4 Earnings From Big Banks On Weak Interest Income

The fourth-quarter earnings season is set to kickstart next week, with the financial sector among the early reporters. As the economy and markets turn volatile amid mounting geopolitical tensions, here's a look at how big banks may have fared in the fourth quarter that closed out 2019.

Buoyant Markets Boost Trading Revenues

With markets racing to records in the final quarter of the fiscal year 2019, trading revenues may have remained strong.

The major stock market gauges ended 2019 just shy of a record. The S&P 500 Index soared about 29% for the year, the Stoxx Europe 600 index was up more than 23% and the iShares MSCI Emerging Markets Indx (NYSE: EEM), considered a proxy for emerging market stocks, added about 18% in 2019.

Apart from the strong equity markets, other market-related revenues benefited from weak comps, JPMorgan analyst Vivek Juneja said in a preview of large-cap bank earnings. 

See Also: This Bank ETF Could Benefit From More M&A Activity

Interest Income An Achilles' Heel?

Loan growth remained weak in the quarter, especially commercial and insurance, or C&I, loans, Juneja said.

Yet credit loans fared relatively better, propped up by better consumer spending on a year-over-year basis, the analyst said. 

U.S. Bancorp (NYSE: USB) guided to weak credit card and debit card processing revenue, according to JPMorgan. 

C&I loans were hurt by political uncertainty, growth in institutional leveraged loans and continued strong high-yield bond issuance, Juneja said. 

The loan/deposit ratio remained the lowest since 1985, the analyst said, citing Fed data.

The weakness stemmed from weak loan growth and continued deposit growth, and this is likely to add pressure on net interest margin and net interest income, he said. 

JPMorgan expects universal banks to outperform regional banks, as the former have a lower share of revenue from net interest income.

" ... We would take profits on the sector overall if bank stocks continue to appreciate, given tepid earnings and little change in fundamentals," Juneja said. 

JPMorgan views sees politics as a key risk.

In the fourth quarter of 2019, the Financial Select Sector SPDR Fund (NYSE: XLF) added about 10.5%.

Expenses Contained, Credit Quality Fine

Thanks to cost cuts, banks were able to keep expenses down, according to JPMorgan.

The firm also sees credit quality remaining decent and buybacks increasing.

The Schedule

  • Citigroup Inc (NYSE: C) - Tuesday, Jan. 14 (8 a.m.)
  • Wells Fargo & Co (NYSE: WFC) - Tuesday, Jan. 14 (8 a.m.)
  • JPMorgan Chase & Co. (NYSE: JPM) – Tuesday, Jan. 14 (7 a.m.)
  • Goldman Sachs Group Inc (NYSE: GS) – Wednesday, Jan. 15 (7:30 a.m.)
  • Bank of America Corp (NYSE: BAC) – Wednesday, Jan. 15 (6:45 a.m.)
  • Morgan Stanley (NYSE: MS) – Thursday, Jan. 16 (7:15 a.m.)

The Estimates

2020-01-08_14.png

Source: Yahoo database

Latest Ratings for JPM

DateFirmActionFromTo
Jan 2020MaintainsOutperform
Jan 2020MaintainsNeutral
Jan 2020ReiteratesBuy

View More Analyst Ratings for JPM
View the Latest Analyst Ratings

Posted-In: JPMorgan Vivek JunejaAnalyst Color Earnings Previews Analyst Ratings Trading Ideas Best of Benzinga

 

Related Articles (BAC + C)

View Comments and Join the Discussion!
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com