Citigroup Leads as Big Banks Launches Fourth Quarter Results Season

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The fourth quarter earnings season will begin seriously next week, starting Monday, when Citigroup Inc.

C, + 0.44%

becomes the first major US bank to report its quarterly results.

JPMorgan Chase & Co.

JPM, -0.48%

and Wells Fargo & Co.

WFC, + 0.25%

must publish their results on Tuesday, followed by Goldman Sachs Group Inc.

GS, + 0.53%

and Bank of America Corp.

Blood alcohol level, + 1.17%

on Wednesday and Morgan Stanley

MS, + 0.19%

Thursday.

Analysts are expecting a decent series of figures, given an economy that seems to be doing well, based on vacancy numbers and retail sales, controlled inflation and a more dovish Federal Reserve. But market volatility, political uncertainty and global tensions have created an uncertain environment that could prevent the numbers from igniting a definitive fire under the actions of banks, which have generally declined over the past year.

"Compared to the Brexit and growth challenges in EMEA and the weakness of emerging markets, the US still has a better economic and growth profile," said Mark Doctoroff, co-head of the Financial Institutions Group. of MUFG. "The risks to this situation are obvious: prolonged government shutdown, low credit and deterioration in the investment grade / non-investment grade universe and random market closure due to more extreme volatility. .

Analysts expect faster loan growth compared to recent quarters, based on data from the Federal Reserve, with commercial and industrial loans in the lead. Net interest margins should benefit from higher short-term rates, while net interest income should be boosted by a faster recovery in loan growth.

"Overall, we expect accelerated loan growth over recent quarters, stable to slightly higher NIMs, below 10% growth in net revenues, stable credit quality and difficult market incomes." "wrote UBS analysts led by Saul Martinez in a note.

"Compared to the Brexit and growth challenges in EMEA and the weakness of emerging markets, the US still has a better economic and growth profile."

Mark Doctoroff, MUFG

Jay Pestrichelli, co-founder of investment firm ZEGA Financial, which oversees $ 400 million in assets under management, agreed and said investment bank fees should be lower given the reduced number of transactions in equities and debt securities during the quarter.

The stock subscription volume in the United States decreased by 20% in value compared to the same period of the previous year, according to the research and data firm Dealogic, and had decreased by 25% in number of transactions . Share subscriptions were down 40% from the third quarter in terms of transaction value and decreased by 26% in terms of the number of transactions.

The volume of debt underwriting decreased by 28% in value compared to the previous year, according to data from Dealogic, and down 23% depending on the number of transactions. The volume of debt underwriting decreased by 21% compared to the third quarter in value of transactions and 7% in number of transactions.

But trading revenues are expected to be higher given the high volatility and volume of the market at the end of the year, when the stock and bond markets have rocked tremendously in a context of trade tensions with China, the threat – then the realization – a government block, mixed governments. data and concerns regarding the direction of interest rates.

"So much happened in December and the volume was high at a time when we normally did not have that," he said. "For banks such as Goldman and Morgan Stanley, which carry out major trading, we expect everything to be on the rise. At the end of the third quarter, when they wrote their earnings forecasts, no one expected December to do what it did. "

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Pestrichelli said some sources of concern remain, including the quality of credit. The spreads of high-yield bonds, or "junk", or the risk premium that borrowers pay on a risk-free public debt, have recently widened to their highest level in more than two years, reflecting weak demand from investors.

The month of December was the first month since 2008 at the height of the financial crisis without any high-yield transactions having occurred, the Wall Street Journal announced on Thursday. This drought reflects investors' concerns about market volatility, uncertainty about the economic outlook and the recent drop in oil prices. Energy companies are the most active issuers of rated debt.

"Credit quality will definitely be used in press releases," said Pestrichelli. "Banks like JPMorgan will want to ease liquidity concerns."

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Investors will be excited about what the big banks are waiting for in 2019 and it is likely the sector will come out of its slump. SPDR S & P Bank ETF

KBE, + 0.43%

has fallen 21% in the last 12 months, while the Invesco KBW Bank ETF

KBWB, + 0.41%

fell 19%. The S & P 500

SPX, -0.01%

and the Dow Jones Industrial Average

DJIA, -0.02%

have decreased by 6% in the last 12 months.

Mr. Doctoroff of MUFG noted that there have been significant mergers and acquisitions in the pharmaceutical sector since the beginning of 2019, including those of Bristol-Myers Squibb Co.

BMY, + 0.57%

Takeover of Celgene Corp. by 74 billion dollars

CELG, + 0.52%

.

"Capital markets still have good potential, although some issuers are delaying their issuance to cope with market volatility," he said.

Here is what to expect from the big American banks:

Profit from Citigroup: Citigroup expects earnings per share of $ 1.55 from $ 1.14 a year ago, according to analysts surveyed by FactSet. Estimize, which includes estimates from analysts, academics, students and other entities on the sellers 'and sellers' side, is expecting EPS of $ 1.60.

Returned: Revenues are expected to grow from $ 17.012 billion a year ago to $ 17.562 billion, according to FactSet. Estimate this figure at $ 17.689 billion.

Price of the action: Citi shares fell 25% in the last 12 months, while the S & P 500 and the Dow Jones Industrial Average declined 6.5%. Analysts surveyed by FactSet posted an average overweight in the stock, with an average stock price target of $ 74.47, about 25% higher than its current price.

JPMorgan benefit: JPMorgan is expected to report a EPS of 2.21 USD, against 1.76 USD a year ago, according to FactSet. Estimate the number slightly higher than $ 2.23.

Returned: JPMorgan is expected to record revenue of $ 26.902 billion, up from $ 25.450 billion a year ago, according to FactSet. Estimize forecasts a turnover of 27,001 billion dollars.

Price of the action: JPMorgan's shares have fallen 10% in the last 12 months, but are up 1.8% in 2019. Analysts surveyed by FactSet have an average overweight or buy share rating on shares with a average price target of $ 117.48, or 16% above its current trading level.

Benefit of Wells Fargo: Wells is expected to post EPS of $ 1.20 against $ 1.16 a year ago, according to FactSet. Estimize is expecting a EPS of 1.18 USD.

Returned: The San Francisco-based lender is expected to generate a turnover of $ 21.751 billion, down from $ 22.050 billion a year ago, according to FactSet. Estimize is expecting a turnover of $ 21.580 billion.

Price of the action: Wells Fargo shares fell 25% in the last 12 months but rose 3.1% in the new year. Analysts surveyed by FactSet are overweight the stock, with an average price target of $ 58.78, about 20% higher than its current price.

Goldman Sachs benefit: According to FactSet, Goldman is expected to report EPS of $ 4.43, down from $ 5.68 a year ago. Estimate forecasts a EPS of $ 5.84.

Returned: According to FactSet, Goldman is expected to generate revenue of $ 7.586 billion, up from $ 7.834 billion a year ago. Revenues are expected to reach $ 8.152 billion.

Price of the action: Goldman's shares have fallen 32% in the last 12 months, making it the worst performance among the major banks. But FactSet's analysts have a moderate overweight in the stock and a price target of $ 230.15, about 24% above its current trading level.

Bank of America results: According to FactSet, Bank of America is expected to record a 63 cents EPS, up from 47 cents a year ago. Estimate is expecting 65 cents.

Returned: According to FactSet, Bank of America's business figure is expected to reach $ 22.362 billion, up from $ 20.4 trillion a year ago. Estimize is expecting a turnover of $ 22.467 billion.

Price of the action: The stock has fallen 16% in the last 12 months and has increased by 4% in 2019 so far. FactSet analysts give the stock an overweight position with an average price target of $ 31.79 per share, about 24% higher than its current price.

Morgan Stanley benefit: According to FactSet, Morgan Stanley should post a 90 cents EPS, against 81 cents a year ago. Estimate that the number is indexed at 91 cents.

Returned: Morgan Stanley is expected to post a turnover of $ 9.346 billion, up from 9.021 billion a year ago. Estimize is expecting a turnover of $ 9.413 billion.

Price of the action: Shares of Morgan Stanley have fallen 24% in the past 12 months but have risen 4% in 2019 so far. Analysts surveyed by FactSet also believe the stock is overweight with an average price target of $ 52.73, up 27% from its current level.