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Zacks Industry Outlook Highlights: JPMorgan Chase, Wells Fargo and Citigroup

Zacks Equity Research

For Immediate Release

Chicago, IL – August 12, 2013 – Today, Zacks Equity Research discusses the U.S. Banks, including JPMorgan Chase & Co. (JPM-Free Report), Wells Fargo & Company (WFC-Free Report) and Citigroup, Inc. (C-Free Report).

Industry: U.S. Banks

Link: http://www.zacks.com/commentary/28510/U.S.-Banks-Stock-Outlook---Aug.-2013

The broader Finance sector, of which U.S. banks are part, remains in excellent shape with respect to earnings. So far, 83.3% of the sector participants have reported second-quarter results, which have been very strong in terms of both beat ratios (percentage of companies coming out with positive surprises) and growth.

Both earnings and revenue beat ratios were pretty robust at 73.8% and 61.5%, respectively. Also, total earnings for the companies that have reported so far have shown an impressive 29.8% year over year increase on 8.6% growth in revenues. This compares with a substantially lower earnings improvement of 7.4% on 5.1% growth in revenues in the first quarter of 2013.    

The consensus earnings expectations for the rest of the year also depict a fairly strong trend. Though earnings growth is expected to slowdown to 8.0% in the third quarter, a stupendous improvement of 27.9% is expected in the fourth quarter. Overall, the sector is expected to register full-year growth of 16.1%.

For a detailed look at the earnings outlook for this sector and others, please read our weekly Earnings Trends reports.

Banks Show Potency

While 16.7% of the companies in the Finance sector are yet to come out second-quarter 2013 results, all major banks have already reported. Surging profits of the mammoths such as JPMorgan Chase & Co. (JPM-Free Report), Wells Fargo & Company (WFC-Free Report) and Citigroup, Inc. (C-Free Report) were primarily backed by loan loss reserve releases. Similar to the last few quarters, banks set aside less money for bad loans this quarter. So, the core earnings power of the sector is still lacking.

Overall results of the mega banks show that top line still needs to improve for assured strength in performance. However, the positive developments of the sector and better macroeconomic elements helped most of the business segments of banks report improved results. A boom in investment banking in recovering financial markets led to good numbers.

The Federal Deposit Insurance Corporation (:FDIC) has yet to release the second-quarter results for FDIC-insured commercial banks and savings institutions. But the progress seen in the first quarter is a clear growth indicator.   

FDIC-insured institutions earned $40.3 billion in the first quarter, up 15.8% from the year-ago quarter. This marked the 15th straight quarter of year-over-year earnings increase.

Besides contraction in provisions for credit losses and cost containment, marked recovery in the bond and equity markets and consequent growth in noninterest income helped most of the banks report higher-than-expected earnings. Given the solid results by the mega-banks in the second quarter, the improvement is likely to have further gained ground.

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