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Banking Earnings Mixed, ETFs Gain Moderately

Sanghamitra Saha

The Q4 earnings season has been pretty moderate so far for the financial sector, which accounts for around one-fifth of the S&P 500 index. Four big banks have crushed estimates on both the lines while two reported mixed results (read: Why Bank ETFs May Soar in 2020).

Let’s take a look at major banking earnings releases in detail:

Big Bank Earnings in Focus

JPMorgan’s JPM fourth-quarter 2019 earnings of $2.57 per share outpaced the Zacks Consensus Estimate of $2.32. Net revenues as reported were $28.3 billion, up 9% from the year-ago quarter. Also, the top line beat the Zacks Consensus Estimate of $27.3 billion.

Wells Fargo’s WFC fourth-quarter 2019 adjusted earnings of 93 cents per share lagged the Zacks Consensus Estimate of $1.12, on lower net interest income and rise in expenses. Results exclude litigation accruals. The quarter’s total revenues came in at $19.9 billion, outpacing the Zacks Consensus Estimate of $19.8 billion. The revenue figure, however, came in lower than the prior-year quarter’s tally of $21 billion.

Citigroup’s C quarterly adjusted earnings of $1.90 per share beat the Zacks Consensus Estimate of $1.82. Revenues were up 7% year over year to $18.4 billion in the fourth quarter. The reported figure also beat the Zacks Consensus Estimate of $17.7 billion. Higher revenues, both from Global Consumer Banking (GCB) and Institutional Clients Group (ICG), mainly led to this upside.

Bank of America’s BAC fourth-quarter 2019 earnings of 74 cents per share outpaced the Zacks Consensus Estimate of 68 cents. The figure rose 6% from the prior-year quarter. Net revenues amounted to $22.3 billion, which marginally beat the Zacks Consensus Estimate of $22 billion. However, the reported figure was down 1% on a year-over-year basis.

Goldman Sachs GS posted earnings per share of $4.69, missing the Zacks Consensus Estimate of $5.20. Further, the bottom-line figure compares unfavorably with earnings of $6.04 per share recorded in the year-earlier quarter. Goldman’s net revenues were up 23% year over year to $10 billion in the reported quarter. The revenue figure also beat the Zacks Consensus Estimate of $8.8 billion.

Morgan Stanley’s MS fourth-quarter 2019 adjusted earnings of $1.20 per share surpassed the Zacks Consensus Estimate of $0.97. The figure jumped 64% year over year. Net revenues for the quarter were $10.86 billion, up 27% from the prior-year quarter. Also, the top line beat the Zacks Consensus Estimate of $9.52 billion. Morgan Stanley recorded a rise in both trading and investment banking revenues.

Market Impact

Against this backdrop, investors might be wondering how financial ETFs like iShares U.S. Financial Services ETF IYG, iShares US Financials ETF IYF, Invesco KBW Bank ETF KBWB, Financial Select Sector SPDR XLF and Vanguard Financials ETF VFH have responded to the earnings releases. These funds have considerable exposure to the aforementioned stocks (see all Financial ETFs here).

Goldman and Morgan Stanley are not that prominent in the afore-mentioned ETFs, but are rather heavy on iShares U.S. Broker-Dealers & Securities Exchanges ETF IAI. Most of these ETFs put up a modest performance in the last five days — which marked the peak of banking earnings releases, apart from KBWB. The recent decline in long-term U.S. treasury yields in the wake of the Coronavirus outbreak resulted in the flattening of the yield curve and hurt the funds.