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Though banks that reported first-quarter 2021 results this week beat estimates on higher fee income and large reserve releases, investors remain concerned about soft lending scenario (that has been plaguing banks since the start of coronavirus pandemic). Further, not so impressive management guidance for the second quarter has added fuel to fire. As such, bearish investor sentiments have been dragging down most bank stocks in the past five trading sessions.
Low interest rates and muted loan demand resulted in a fall in net interest income and contraction of banks’ net interest margins, despite steepening of the yield curve in the last quarter. Additionally, as banks continue to spend heavily on technology upgrades and undertook efforts to streamline operations, expenses rose during the quarter.
On the fee income front, major banks’ financials got huge support from stellar capital markets performance, as both trading and investment banking operations were robust. Also, historically low mortgage rates supported mortgage banking business as both refinancing and origination activities witnessed a surge.
This time, consumer banking operations too provided some support to banks’ fee income growth. Higher consumer sentiment on a low unemployment level during the first quarter and $1.9 trillion stimulus package mainly drove the decent performance.
Further, a substantially large reserve release by major banks (as economy gradually rebounded) supported the results. Overall, banks’ balance sheet and liquidity positions remained solid.
(Read: Bank Stock Roundup for the Week Ending Mar 26, 2021)
Important Earnings of the Week
1. Large reserve releases and solid capital markets performance drove JPMorgan’s JPM first-quarter 2021 earnings of $4.50 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.05. Results included credit reserve releases and the contribution to the company’s foundation. Excluding these, adjusted earnings amounted to $3.31 per share. The company had earned 78 cents in the prior-year quarter.
2. Solid mortgage banking and capital markets performance supported Wells Fargo’s WFC first-quarter 2021 earnings of $1.05 per share, which surpassed the Zacks Consensus Estimate of 69 cents. Also, the bottom line compared favorably with the prior-year quarter figure of 60 cents. Results included certain non-recurring items.
3. Stellar trading and investment banking performance, and big reserve release drove Bank of America’s BAC first-quarter 2021 earnings of 86 cents per share, which handily beat the Zacks Consensus Estimate of 65 cents. Also, the bottom line compared favorably with 40 cents earned in the prior-year quarter level.
4. Citigroup C delivered a positive earnings surprise of 1.4% in first-quarter 2021 on significant reserve releases. Income from continuing operations per share of $3.62 handily outpaced the Zacks Consensus Estimate of $2.56. Also, results compared favorably with $1.06 in the prior-year quarter.
5. U.S. Bancorp’s USB first-quarter 2021 earnings per share of $1.45 surpassed the Zacks Consensus Estimate of 95 cents. The bottom line compared favorably with the prior-year quarter’s figure of 72 cents. Provision benefits and strong deposit balance acted as tailwinds. However, lower revenues, along with escalating expenses and fall in average loan balance, were the key undermining factors.
6. Truist Financial’s TFC first-quarter 2021 adjusted earnings of $1.18 per share outpaced the Zacks Consensus Estimate of $1.12. Compared with the previous quarter, the bottom line improved 42%. Results were aided by record performance from its insurance business and investment banking as well as a decline in provision for credit losses and lower expenses. However, lower rates on earning assets hindered net interest income growth.
Here is how the seven major stocks performed:
Over the past five trading days, Bank of America and PNC Financial recorded the maximum loses, with their shares falling 3.1% and 3%, respectively. However, shares of Wells Fargo have rallied 3.6% during the same period.
Over the past six months, Wells Fargo shares of have jumped 85.5%, while Capital One and Citigroup have surged 72.5% and 69.8%, respectively.
Over the next five trading days, the focus will solely be on earnings releases as some major banks are scheduled to report first-quarter numbers. Comerica Incorporated, Fifth Third Bancorp and KeyCorp are slated to announce results on Apr 20, while Bank OZK will report on Apr 22.
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