Big Bank Earnings: The Week Ahead Could Be Make Or Break
With five of six of the largest banks in the nation scheduled to report earning results for the fourth quarter, for the financial sector it is a make or break week. On Wednesday morning Goldman Sachs (GS) and JP Morgan (JPM) report. On Thursday it will be Bank of America (BAC) and Citigroup (C) while Friday it is Morgan Stanley (MS).
There have been strong gains for bank stocks ahead of these critical earnings reports. The Financial SPDR ETF (XLF) which carefully follows more than 80 diversified financials has shown a gain of over 4% since the beginning of the year and from one year ago 23%.
For the group the earning expectations are relatively strong. Fact Set reports an expected 8.7% earnings growth rate for the overall financial sector, however with insurance companies stripped out that growth number expectation jumps to 30%.
Jumping ahead of JP Morgan who usually report bank earnings first was Wells Fargo (WFC) who last week became the first mega-bank reporting. Wells Fargo posted revenues and profits above estimates but they did raise some concerns regarding NIM or net interest margins Wells funded in mortgages last quarter $125 billion which was more than the same quarter last year when the number was $120 billion. That number did however fall from the third quarter when it was $139 billion. In addition, the bank reported an interest income drop of 2% compared to last year's same quarter which raised concerns that rates which are historically low are pressuring margins.
It is expected that pressure on bank margins will be heavy which has some investors attempting to avoid larger NIM compression by favoring smaller financials.
Harrington Capital Management partner Kyle Harrington shares his thoughts how he prefers regional banks in the financial services arena because when people put cash back into real estate and the housing market comes back those banks will be the first to benefit.
He also is of the mind that these big banks have a lot of big loans and mortgages they are holding and not certain how to flush out making the risk-reward profile not as valuable as are the regionals.