Citi, JPMorgan Expect Trading Revenues to Disappoint in Q1
At the Credit Suisse Financial Service Forum held on Thursday, top executives from Citigroup C and JPMorgan Chase JPM warned investors that trading revenues might disappoint in the first quarter of 2021.
Per Citi’s CFO Mark Mason, trading and fixed-income revenues are likely to fall in a mid-single-digit percentage on a year-over-year basis as the prior-year quarter benefitted from the pandemic-induced volatility.
Then again, Jennifer Piepszak, CFO at JPMorgan, said that though trading revenues have risen "meaningfully" in the current quarter so far, the trend could change, owing to impressive prior-year figures.
Regarding, investment banking revenues, Citi expects the same to grow in high-teens or low-20s on account of a rise in initial public offerings during the quarter.
“I think we’re off to a very good start to the year,” Mason said.
Citi also informed investors regarding its expectations of mid-single-digit growth in expenses in the first quarter. The upside will likely be driven by its efforts to improve the risk-management technology.
The move comes as part of the Wall Street bank’s efforts to remediate past failures for which the Office of the Comptroller of the Currency and the Federal Reserve rebuked Citi. Further, Mason informed that the company is reviewing its businesses to simplify its operations.
At the same conference held earlier this week, Wells Fargo & Company’s WFC chief financial officer, Mike Santomassimo, said that he expects interest revenues to remain flat or decline 4% from the previous quarter. Also, growth in commercial loans is expected to remain weak and is likely to decline sequentially.
Our Take
Banks’ have mixed view about their performance in the first quarter. As the economic slowdown continues to hamper business activities, the demand for loans is not likely to improve much. This coupled with low rates is expected to hurt net interest income, which constitutes a major portion of banks’ revenues. However, strong IPO activities and underwriting activities are expected to make investment banking revenues increase.
Shares of Citi and JPMorgan have rallied 30.3% and 47.7%, respectively, over the past six months compared with the industry’s growth of 42.3%.
Both companies are currently carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
A better-ranked stock in the same space is M&T Bank Corporation MTB. This Zacks Rank #2 (Buy) company has been witnessing upward estimate revision for the current year over the past 30 days. Also, its shares have gained 51% over the past six months.
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