Citigroup, JPMorgan Chase and Wells Fargo will report third-quarter results Friday, and expectations are very positive.
Among factors that could result in strong quarterly results are the recently passed tax cuts, which lower banks’ expenses, and the Federal Reserve’s interest rate hikes, which boosts banks’ revenue.
According to Bank of America Merrill Lynch, the consensus estimate is for overall third-quarter year-over-year earnings growth of 20.7 percent and revenue growth of 7.1 percent. But the bank noted that results could exceed their expectations, especially since strong second-quarter results will continue into the third quarter.
Analysts polled by Refinitiv expect JPMorgan Chase to earn $2.26 per share on revenue of $27.57 billion. In the second quarter, JPM earned $1.76 per share on revenue of $26.2 billion.
Citigroup is forecast to earn $1.69 on revenue of $18.45 billion. In the second quarter of this year, Citigroup earned $1.63 per share and revenue came in at $18.46 billion.
Wells Fargo is forecast to earn $1.17 per share on revenue of $21.9 billion. In the second quarter, Wells Fargo missed expectations reporting a profit of $0.98 per share on revenue of $21.6 billion. The quarterly earnings per share included a discrete income tax expense of $0.10 per share.
As always, analysts will look for information on loan growth and trading revenue while concerns circulate around the stronger dollar and trade tensions.
The yield curve will likely be another topic of conversation and how banks are preparing as the yield curve flattens. A flattening yield curve often signals investor concern about the economy and, thus, a preference for bonds over stocks.
Because analysts expect robust quarterly performance, it may take a surprisingly strong report to cause investors to bid shares up higher.
Bank stocks are, overall, lagging the general market, with the S&P 500 financials index down 2.6 percent year to date, whereas the S&P 500 is up 3.11 percent.
Of the three banks, share price performance this year has been varied. JPMorgan Chase’s shares are up about 2.5 percent year-to-date, Citigroup’s shares are down over 6 percent year to date, and Wells Fargo’s shares are down almost 14 percent.