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Capital Markets, Credit in Focus as JPMorgan Kicks Off Bank Earnings

Capital Markets, Credit in Focus as JPMorgan Kicks Off Bank Earnings

(Bloomberg) -- As banks’ first-quarter earnings season kicks off, investors are turning their attention to any hints of recession, the health of bank customers, and early second-quarter capital market trends. JPMorgan Chase & Co. and Wells Fargo & Co. are due to report before the bell Friday, with results from Goldman Sachs Group Inc., Citigroup Inc., Bank of America Corp. and Morgan Stanley next week.

Lousy trading and interest rates on hold are already baked into earnings estimates and share prices. Earlier in April, BofA Chief Executive Officer Brian Moynihan set expectations when he said first-quarter trading revenue was down about 15 percent, and flagged uncertainty about the government shutdown’s impact. In March, JPMorgan warned the quarter’s trading revenue was likely to drop by a percentage in the "high-teens."

With that in mind, questions are arising about how much capital markets may have recovered, along with whether a shifting yield curve will impact net interest margin forecasts, Credit Suisse’s Susan Roth Katzke wrote in a note. Healthy GDP growth is critical, she said, as that would in turn support “loan and deposit growth, healthy capital markets activity and nothing worse than credit quality normalization.”

Capital Markets, Credit in Focus as JPMorgan Kicks Off Bank Earnings

“A recession is coming, but not in the second quarter,” said Bloomberg Intelligence’s Alison Williams. She sees the focus turning toward capital return payouts, likely to be announced in late June, if there’s “enough positive commentary around healthy customer demand and early second-quarter capital markets trends.”

Bank shares have rallied so far this year after a dismal 2018 ended with a steep drop in December. The KBW Bank Index has gained almost 14 percent year-to-date, slightly trailing the S&P 500’s 15 percent increase. The worst performers this year in that KBW index include leaderless, penalty-box bank Wells Fargo, with a gain of 3.6 percent, and JPMorgan, up 8.8 percent. Shares of Citigroup, meanwhile, have climbed 27 percent.

Read more: Wells Fargo Cut as KBW Says Sailing’s Tough ‘Without a Captain’

Some analysts doubt bank stocks are poised for gains on earnings results.

KBW’s Frederick Cannon in an email said he expects management teams “will be cautious in light of the flat curve, moderate loan growth and the economy slowing.” He doesn’t think “a somewhat rosier outlook for capital markets will be enough” to lift estimates, so KBW is staying “cautious going into earnings.”

Capital Markets, Credit in Focus as JPMorgan Kicks Off Bank Earnings

Though large-cap banks are likely to beat consensus estimates by about 1 percent, Vining Sparks’s Marty Mosby wrote in a note that “seasonality and lack of momentum in key metrics, like net interest margins,” may crimp gains. He sees shares taking “a short pause” through spring, “before rekindling the momentum in late June when the 2019 capital announcements begin to roll-out.”

“Revenue revisions downward certainly do not paint a positive picture for the stocks,” BofAML’s Erika Najarian wrote in a note. “That said, unless there are major downward surprises” in first-quarter net interest margins, “we think the stocks can continue to ‘melt up’ over the near-term.” Solid near-term data re-steepening the curve might help, as would resuming buybacks. At the same time, Najarian wrote, “We warn investors that despite these dynamics, we still think the average bank could be in a negative EPS revision cycle.”

Earlier this month, Autonomous Research analyst John McDonald said “peaking fundamentals and a flat yield curve create a tough environment for bank stocks,” which means that there’s probably no “sustainable re-rating call to make."

Read more: Big Bank Earnings Estimates Trimmed 8.4% Since Last Quarter

For JPMorgan’s first-quarter, KBW is focusing on “loan growth, net interest margins, and updates on the trading environment and investment banking pipelines,” analyst Brian Kleinhanzl wrote in a note. He sees “a slower pace in loan growth,” driven by a “slower growth rate for wholesale loans and seasonality in the cards business.”

Capital Markets, Credit in Focus as JPMorgan Kicks Off Bank Earnings

Key factors to watch with JPMorgan’s results include: Return targets, capital plans, trading, expenses, and consumer strategies for branch and card, Barclays’s Jason Goldberg wrote in a note. Wells Fargo is all about “searching for a new CEO and revenue growth,” Goldberg said in a separate note.

Commerce Bancshares Inc. shares tumbled 3.2 percent on Thursday after it kicked off mid-cap bank earnings season by missing estimates. Weak loan growth may “reignite concerns around broader economic weakness and slowing loan demand,” Morgan Stanley analyst Ken Zerbe wrote in a note.

Capital Markets, Credit in Focus as JPMorgan Kicks Off Bank Earnings

JPMORGAN ESTIMATES

  • Earnings release expected Friday 6:45am New York time
  • 1Q adjusted EPS est. $2.35 (range $2.12 to $2.44)
  • 1Q adjusted revenue est. $28.36b (range $27.10b to $29.16b)
  • 1Q total trading rev. est. $5.40b
    • Equities $1.73b
    • FICC $3.67b
  • I-banking rev. est. $1.63b
  • Call 8:30am, 866-541-2724
  • See Bloomberg Intelligence 1Q Preview: JPMorgan to Set Global Bank Bar for Capital Markets (April 9)

WELLS FARGO

  • Earnings release expected Friday at 8am
  • 1Q adjusted EPS est. $1.09 (range $1.01 to $1.16)
  • 1Q net interest margin est. 2.93%
  • 1Q net charge-offs est. $821.3m
  • 1Q provision for credit losses est. $744.1m
  • Call 10am, 866-872-5161
  • See Bloomberg Intelligence 1Q Preview: Wells Fargo CEO Question Overshadows Quarterly Look (April 9)
Capital Markets, Credit in Focus as JPMorgan Kicks Off Bank Earnings

GOLDMAN SACHS

  • Earnings release expected Monday at 7:30am
  • 1Q adjusted EPS est. $4.97 (range $3.20 to $5.94)
  • 1Q net rev. est. $8.97b (range $8.42b to $9.81b)
  • 1Q total trading rev. est. $3.61b
    • Equities $1.83b
    • FICC $1.78b
  • I-banking rev. est. $1.70b
  • Call 9am, 888-281-7154
  • See Bloomberg Intelligence 1Q Preview: Goldman’s Share to Matter More Than Weaker Revenue (April 10)

CITIGROUP

  • Earnings release expected Monday at 8am
  • 1Q adjusted EPS est. $1.80 (range $1.73 to $1.87)
  • 1Q adjusted revenue est. $18.59b (range $18.28b to $19.01b)
  • 1Q total trading rev. est. $4.11b
    • Equities $927m
    • FICC $3.18b
  • I-banking rev. est. $1.16b
  • Call 10am, 866-516-9582 password: 8995846
  • See Bloomberg Intelligence 1Q Preview: Citi’s Costs Should Deliver Amid Revenue Pressure (April 10)

BANK OF AMERICA

  • Earnings release expected Tuesday at 6:45am
  • 1Q adjusted EPS est. 66c (range 62c to 71c)
  • 1Q rev. net of interest expense est. $23.17b (range $22.59b to $23.71b)
  • 1Q total trading rev. est. $3.49b
    • Equities $1.21b
    • FICC $2.27b
  • I-banking rev. est. $1.29b
  • 1Q net interest yield est. 2.52%
  • 1Q provision for credit losses est. $930.8m
  • Call 8:30am, 877-200-4456 pw: 79795
  • See Bloomberg Intelligence 1Q Preview: BofA’s Responsible Growth May Cast Light on Demand (April 10)

MORGAN STANLEY

  • Earnings release expected Wednesday at 7am
  • 1Q EPS est. $1.17 (range $1.11 to $1.28)
  • 1Q net rev. est. $9.91b (range $9.55b to $10.34b)
  • 1Q total trading rev. est. $3.66b
    • Equities $2.07b
    • FICC $1.59b
  • I-banking rev. est. $1.27b
  • Call 8:30am, 877-895-9527 pw: 6727926
  • See Bloomberg Intelligence 1Q Preview: Morgan Stanley Revenue Snap, Cost Control Expected (April 11)

--With assistance from Jenny Surane and Lananh Nguyen.

To contact the reporters on this story: Felice Maranz in New York at fmaranz@bloomberg.net;Gerald Porter Jr. in New York at gporter30@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Sebastian Silva, Jeremy R. Cooke

©2019 Bloomberg L.P.