Bank of America reported a 34% rise in first-quarter profit last night, topping Wall Street estimates, as the bank benefited from higher interest rates and growth in loans and deposits.
However, BAC under-performed in fixed income, currency and commodities (FICC) trading because of a decline in bond issuance from corporations.
Trading revenue was up only 1%. Equities trading revenue, excluding items, rose 38%, while revenue from trading fixed income fell 13%.
BAC’s trading results mirrored those of rivals JP Morgan and Citigroup; revenue from stock trading rose at both the banks, but weakness in bond trading crimped total trading revenue growth, which is why their share prices remain soft.
To a large degree, the local banks face the same headwinds but with the added risk of the Royal Bank commission.
Hearings from the commission are back on this week with QBE and SUN included in the questioning over insurance related business practices.
Our ALGO engine triggered a sell signal late last year in both QBE and SUN at $10.40 and $14.05, respectfully.
We remain cautious of the local banking names and see the risk continue to be skewed to the downside, especially in the regional names like BOQ and BEN.
Shares of JP Morgan reached an all-time high of $112.80 as the firm announced adjusted Q4 EPS of $1.76 versus expectations of $1.69.
Revenue numbers were announced at $25.45 billion against the street’s forecast of $25.15 billion.
The small gain in revenue was tempered by a 34% decline in its fixed-interest revenue, which was a result of lower market volatility and tighter credit spreads.
The company returned $6.7 billion back to shareholders during Q4 with $4.7 in net share buy-backs.
With the major indexes at elevated levels, Q4 earnings could add some volatility to global equity markets.
Other key banking names reporting this week include CitiBank on Tuesday followed by Goldman Sachs and BoA on Wednesday.
JP Morgan Chase
The fourth quarter earnings season kicks into high gear this week when the first of the major US banks report tomorrow night. Expectations are mixed, based on forecasts that include the impact of the FED raising interest rates and the Presidential election.
Bank of America and JP Morgan are both expected to report solid bottom-line growth. On the other hand, Wells Fargo is expected to say that its earnings have slipped from a year ago.
Below is a quick overview of what is expected from these three banks.
BoA Q4 profit is expected to come in at 38 cents per share, which would be close to a 30% gain from the year-ago period. The consensus has earnings pegged at 40 cents per share.
JP Morgan is expected to announce it had earnings of $1.47 per share, which would be up from $1.32 per share a year-ago on revenue of $23.70 billion.
Wells Fargo is expected to post Q4 EPS of $1.00 per share which is down three cents from a year ago on revenue of just over $22.00 billion.