Earnings results from the big banks highlight the benefits of diverse revenue streams, with JPMorgan (JPM – Free Report) and Citigroup (C – Free Report) offsetting decelerating loan growth trends with gains from their investment banking businesses. Wells Fargo (WFC – Free Report) has been dealing lately with a number of company-specific issues, but the absence of a strong investment banking franchise was very much apparent in its earnings.
The loan growth deceleration in all of these reports didn’t come as a surprise – we had seen it in Fed data already. Some of the explanations offered include lower mortgage activity in the wake of higher rates, weak car loan demand and strong capital markets activities prompting big commercial and industrial borrowers to use the bond markets instead of banks.
But these explanations for the slowdown are far from satisfactory, particularly given the backdrop of steadily improving consumer and business confidence and expectations of ramped up U.S. economic growth. That said, the tepid loan demand picture is nevertheless a bigger issue for the regional banks that will be coming out with quarterly results this week. In total, we have 178 companies reporting Q1 results this week, including 61 S&P 500 members.
Finance Sector Scorecard
It is still fairly early, with results from only four Finance sector companies in the S&P 500 (out of 94 total) out already, but these four companies are the some of the largest in the entire index and account for 21.6% of the sector’s total market capitalization in the index. Total earnings for these four Finance sector companies are up +10.8% from the same period last year on +3% higher revenues, with all four beating EPS estimates but only two beating top-line estimates.
This is better earnings growth than we have seen from the same group of four banks in other recent periods, which is having a favorable impact on the aggregate Q1 growth expectation for the sector as a whole. The chart below compares the growth pace (earnings and revenue) and proportion of positive surprises for these 4 banks with what we saw from this same group of companies in other recent periods.
