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JPMorgan, Citi Results May Prove Whether Higher Rates Pay Off

(Bloomberg) -- Bank investors will have their eyes trained on what the U.S. Federal Reserve’s recent interest rate increases, and a shifting yield curve, meant for first-quarter results.

JPMorgan Chase & Co. kicks off earnings reports from big banks before the market opens Friday, along with Wells Fargo & Co. and Citigroup Inc. Next week, Bank of America Corp. arrives Monday, with Goldman Sachs Group Inc. Tuesday and Morgan Stanley Wednesday. The sector rose Thursday ahead of earnings, with the KBW Bank Index gaining as much as 2.8 percent intraday, helped by the prospect of looser regulation, higher 10-year Treasury yields, and easing geopolitical tensions.

The big focus for investors will be on how favorably the Fed’s December rate increase and a steeper curve -- versus the fourth-quarter -- affected net interest margins, RBC Capital Markets’ Gerard S. Cassidy says in an email to Bloomberg News. "Deposit betas will be looked at to see who kept it under control," while capital markets business, especially FICC trading, will be in the spotlight too, he added.

Here’s what other analysts are watching:

Credit Suisse, Susan Roth Katzke

  • Watching loan and deposit pricing, liquidity deployment, deposit growth; indications of an uptick in financing demand; capital markets prospects; tax overhaul impact; credit quality; CCAR-related commentary
  • JPM likely to have "a pretty strong quarter"; focused on macro outlook, interest rates/yield curve, GDP growth -- with implications for loan demand, potential 2H pick up; capital markets environment; mgmt view on changing regulatory dynamics; sees credit costs up q/q on modest upward loss rate normalization
  • For Citi, look for solid y/y rev. growth from Global Consumer Banking (GCB) and Institutional Clients Group (ICG), and mgmt’s take on macro/capital markets outlook, consumer card NIM, growth in North America, improved growth prospects in Mexico; early progress points on new national digital banking initiative, regulations
  • For WFC, focus on balance sheet management in light of Fed’s asset cap limitation; re-affirmation of 2018 $53.5b-$54.5b expense target; investigation/litigation updates; CCAR-related commentary, capital return prospects; also flags likely mortgage banking weakness, uptick in credit costs

Deutsche Bank, Matt O’Connor

  • Watching JPM for whether there’s "front-loading" of investment spend in 1H 2018, triggering higher-than-expected costs; otherwise, trends should be consistent with investor day
    • Citi shares have lagged as high costs may be priced-in; outlook is key, with U.S. card, deposit costs, expenses as swing factors
    • Asks what WFC can do to stabilize shares/EPS; the bank may offer cost plan at May 10 investor day
  • In earnings next week, warns BAC consensus ests. (as of April 5) may be too high given investment banking trends, likely weaker-than-peers trading; GS may show "nice" FICC recovery, solid investment banking; MS likely had strong quarter, though sustaining leading equity trading share may be difficult as competition increases

KBW, Brian Kleinhanzl

  • Banks will benefit from higher rates, even though 1Q fundamentals were soft; flags equity market volatility; will also be watching for likely-slower loan growth, potential NIM surprise as increase in Libor may be more positive than expected, deposit costs may be lower; may be better-than-est. provision expense amid "solid" credit backdrop
    • For JPM, focused on loan growth (magnitude of expected weakness is unknown), NIM, credit
  • Into the quarter, recommends overweighting MS (positive FICC y/y), underweighting WFC, C (may be further weakening in Citi’s North America Cards NIM); sees WFC’s lagging loan growth pushing down consensus ests.

Goldman Sachs, Richard Ramsden

  • Focus on 4 themes: Earning asset growth outlook, given tepid loan demand; deposit betas/impact on NIM; capital market activity sustainability; capital returns amid possibly harder CCAR

CFRA, Lindsey Bell

  • Investors may focus on cost controls, tax overhaul benefits
  • Capital deployment plans will be of significant interest; notes JPMorgan CEO Jamie Dimon noted in shareholder letter that he’d prefer to use capital to grow the business rather than buy back stock
  • Also looking for upbeat management commentary about economic environment, though there may be some caution given uncertain trade talks

Cowen, Jaret Seiberg

  • Key policy issues in bank quarterly conference calls include: How CCAR 2018 will impact capital returns, what the proposed CCAR 2019 changes will mean for future distributions, and how a higher SIFI designation level will benefit regional banks
  • Sees mortgage lending questions, as prospects for housing finance reform have plunged since banks last held their quarterly calls; sees chance may be an effort to shrink Fannie Mae, Freddie Mac role, offering opportunity for banks to revive private-label RMBS market and risk mortgage costs will rise while credit availability falls
  • May be comments on cryptocurrencies; notes banks’ interest in blockchain

BofAML, Erika Najarian

  • Expectations are "set low" for banks’ 1Q results amid weaker loan growth

Bernstein, John McDonald

  • Consensus estimates feel "reasonable," though they still may be slightly behind the Fed’s dot plots, and credit quality and deposit betas are trending better-than-expected
  • On the other hand, weak mortgages, sluggish loan growth may weigh on revisions, with anecdotal evidence suggesting retail deposit betas are turning


  • Earnings release expected Friday ~7am
  • 1Q adj. EPS $2.28 (range $2.15-$2.44)
  • 1Q adj. revenue $27.71b (range $26.70b-$28.23b)
  • 1Q total trading revenue $6.14b
    • Equities $1.76b
    • FICC $4.44b
  • I-banking rev. est. $1.76b
  • 1Q net yield on interest-earning assets 1.33%
  • 1Q provision for credit losses $1.46b
  • Call 8:30am, 866-541-2724


  • Earnings release expected Friday at 8am
  • 1Q adj. EPS estimate $1.61 (range $1.55-$1.66)
  • 1Q adj. revenue estimate $18.88b (range $18.45b-$19.24b)
  • 1Q total trading revenue estimate $4.62b
    • Equities $909m
    • FICC $3.70b
  • I-banking rev. est. $1.21b
  • Call 11:30am, 866-516-9582 pw 83783998


  • Earnings release expected Friday at 8am
  • 1Q adj. EPS estimate $1.06 (range $1.01-$1.16)
  • 1Q net interest margin estimate 2.88%
  • 1Q net charge-offs estimate $762.2m
  • 1Q provision for credit losses estimate $729.4m
  • Call 10am, 866-872-5161


  • Earnings release expected Monday at 6:45am
  • 1Q adj. EPS estimate 59c (range 55c-62c)
  • 1Q revenue net of interest expense estimate $23.01b (range $22.54b-$23.79b)
  • 1Q total trading revenue estimate $4.14b
    • Equities $1.18b
    • FICC $2.96b
  • I-banking rev. est. $1.48b
  • 1Q net interest yield estimate 2.40%
  • 1Q provision for credit losses estimate $968.9m
  • Call 8:30am, 877-200-4456 pw 79795


  • Earnings release expected Tuesday at 7:30am
  • 1Q adj. EPS estimate $5.56 (range $4.88-$6.00)
  • 1Q net revenue estimate $8.75b (range $8.21b-$9.22b)
  • 1Q total trading revenue estimate $3.89b
    • Equities $1.85b
    • FICC $2.04b
  • I-banking rev. est. $1.71b
  • Call 9:30am, 888-281-7154


  • Earnings release expected Wednesday at 7am
  • 1Q adj. EPS estimate $1.25 (range $1.16-$1.33)
  • 1Q net revenue estimate $10.36b (range $9.82b-$10.69b)
  • 1Q total trading revenue estimate $3.78b
    • Equities $2.15b
    • FICC $1.63b
  • I-banking rev. est. $1.40b
  • Call 8:30am, 877-895-9527 pw 2685378

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