Zacks Earnings Trends Highlights: Citi, J.P. Morgan and Bank of America
CHICAGO, July 17, 2014 /PRNewswire/ -- Zacks Director of Research Sheraz Mian says, "The 2014 Q2 earnings season has gotten off to a relatively positive start, though the small sample of reports at this stage is heavily weighted towards the Finance sector"
A Good Start to Q2 Earnings Season
The 2014 Q2 earnings season has gotten off to a relatively positive start, though the small sample of reports at this stage is heavily weighted towards the Finance sector. We will know more in the coming days as companies from outside of Finance post numbers, but it wouldn't be wrong to say that we have made a reassuring start.
As is the case every reporting cycle, the big banks and brokers dominate the initial Finance sector reports. The handful of big money-center banks carry a lot of weight in the sector as a whole, bringing in roughly 40% of the Finance sector's total earnings, and set the stage for what to expect from the other sub-industries.
Estimates for the big bank earnings had fallen ahead of the start of the earnings season as it became clear that weakness in the capital markets business will compound the existing mortgage banking woes. There is not much growth as earnings essentially remain flat from the year-earlier level, but results have been coming in marginally better relative to subdued expectations.
The outperformance is coming from a combination of absence of major negatives and modest improvements in core businesses. On the commercial banking side, we are seeing loan growth starting to pick up on the back of improving commercial and industrial loans and momentum in auto loans even as mortgage portfolios continue to decline and the net interest margin backdrop remains difficult. The improvement on the investment banking side is more notable – we saw that with Citi (NYSE:C-Free Report), J.P. Morgan (NYSE:JPM-Free Report) as well as Bank of America (NYSE:BAC-Free Report). The trading side of the business is still struggling, likely reflecting a secular decline given the changed regulatory environment.
Litigation charges have been, and remain, a recurring part of the big banks' business model, with the issue particularly acute in the Bank of America case which came out with a surprisingly big charge in Q2 after an even bigger one last quarter. Unlike Citi and J.P. Morgan, they still haven't come to terms with the Justice Department on what investors hope will be the last piece on the litigation front.
Looking at the Finance sector results thus far, total earnings for the 12 companies that have reported results (out of 80 total in the index or 15% of the sector's total) are down -1.6% on -2.4% lower revenues, with 83.3% beating earnings and 50% beating revenue estimates.
The table below shows the Q2 earnings scorecard for the component (medium level) industries in the Finance sector. As you can see, the earnings season is almost over for the Major Banks industry, with almost 85% of the industry's total market capitalization already reported Q2 results.
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