The financial sector, which accounts for around one-fifth of the S&P 500 index, had an outstanding 2013. An improved asset market and sound balance sheet primarily helped the sector regain its ground lost five years bank in recession. However, things faltered at the start of this year as evident from the not-so-encouraging first quarter earnings results from the major banking organizations.
Industry dynamics for banking and brokerage concerns seems to have weakened of late thanks to lackluster activities both at household and corporate levels, high frequency trading concerns, increased regulatory scrutiny and sluggish mortgage as well as capital market business.
As per Zacks Industry Trends, the financial sector was to fall 3.9% on bottom line in Q1 with the slide being sharp (down 6.8%) for major banks. Banks and Thrifts and Insurance will likely deteriorate about 15% in the quarter being reported. Sequentially, earnings growth will likely exhibit a flat trend for the major banks and remain down for Insurance and Investment Brokers/Managers (read: Broker Dealer ETF (IAI) in Focus on High Frequency Trading ).
Amid such a scenario, some top banks like JP Morgan, Goldman Sachs, Bank of America reported last week. Let’s delve a little deeper into the big banks’ Q1 earnings and see how things are shaping up for the sector:
Big Bank Earnings in Detail
JP Morgan ( JPM ) kicked off the season with sagging numbers after booking solid earnings in the last quarter. Its earnings of $1.28 per share fell short of the Zacks Consensus Estimate of $1.41 and deteriorated from the year-ago number of $1.59. Net revenue of $23.9 billion was down 8% from the year-ago quarter and was also below the consensus estimate of $24.6 billion.
Bank of America ( BAC ) too had a flop in Q1. It reported a loss of $0.05 per share against earnings of $0.10 in the year-ago quarter and missed the Zacks Consensus Estimate of earnings of $0.05. However, its fully taxable-equivalent revenues (net of interest expense) fell 4% to $22.7 billion which was higher than the Zacks Consensus Estimate of $22.5 billion (read: Can Bank ETFs Bounce Back After Recent Downgrade? ).
However, there are some dark horses in this otherwise pale banking sector. Wells Fargo earned $1.05 in 1Q14, marking the seventeenth consecutive quarter of earnings per share growth. Results improved from $0.92 per share earned in the year-ago quarter.
The reported figure bettered the Zacks Consensus Estimate by $0.08 per share. The quarter’s total revenue came in at $20.6 billion, outpacing the Zacks Consensus Estimate of $20.5 billion. However, revenues were down 3.3% year over year.