Company / Analytics

Analytics, 14 October 2021

US Big Banks Report Positive Q4 2021 Earnings

Major US banks kicked off the fourth-quarter earnings season this week. JPMorgan Chase, Wells Fargo, and Goldman Sachs reported Wednesday while Morgan Stanley, Bank of America, Citigroup, and U.S. Bancorp followed on Thursday.

Reports have so far confirmed economists’ estimates that banks will mostly report slightly higher earnings this quarter, with solid gains from their investment banking divisions which have been active amid a record-breaking boom in takeovers. Still, low-interest rates continue to impact banks’ net interest margins, which should improve as rates rise.

Big bank earnings are usually scrutinized for any indications as to the health of the US economy and the strong results showed improved economic activity.

Our analysis looks at reports of two major banks, JP Morgan, and Bank of America, but with a focus on JP Morgan which is often viewed by investors as a symbol of how well the global economy and markets are doing, due to its substantial presence in almost all conventional lending businesses and works with multinationals globally.

JP Morgan Beats estimates on record profit and revenue

JPMorgan Chase & Co reported earnings Wednesday that beat analysts’ profit estimates, thanks to record revenue in some investment banking businesses and a positive economic outlook.

Third-quarter profit rose 24% compared to the same period last year. The bank’s average loans and deposits rose, as did credit-card spending, boosting its lending income by 2.5% higher from the second quarter.

Overall, JPMorgan’s profit rose to $11.7 billion, or $3.74 per share, in the quarter ended Sept. 30, compared with $9.4 billion, or $2.92 per share, a year earlier. Excluding the reserve release and an income tax benefit, its profit would be $9.6 billion, or $3.03 per share.

Analysts on average had expected earnings of $3.00 per share, according to Refinitiv. Revenue rose 2% to $30.4 billion in the quarter. Analysts on average were expecting revenue of $29.8 billion.

JPMorgan’s Corporate & Investment Bank division provided much of the highlight for its third quarter. The sector saw advisory fees almost triple due to strong performance in M&A and equity underwriting, fueled partly by a spate of initial public offerings.

The sector reported a 6% rise in net revenue, to $12.4 billion while the Consumer & Community Banking division reported a 2% decline in net revenue, to $12.5 billion. Those two businesses toggle for largest by revenue, depending on the quarter.

During the quarter, JPMorgan maintained its position as the second-biggest provider of worldwide M&A advisory after Goldman Sachs Group Inc, based on fees, according to Refinitiv.

How did shares move?

JPMorgan’s shares fell nearly 2.6% Wednesday, after touching an all-time high last week of $171.51, suggesting investors may be taking profits, similar to shares of other large banks.

Shares rose about 5% in the weeks leading up to results, along with other major banks, in hopes of higher interest rates following commentary from the Federal Reserve.

Outlook

Big bank earnings are scrutinized for any indications as to the health of the US economy as it continues to reopen after pandemic restrictions.

JP Morgan maintained its guidance that it sees net interest income for the year to come in around $52.5 billion.

Investors often see JPMorgan not just as a big American bank, but as a symbol of how well the global economy and markets are doing. It has a substantial presence in almost all conventional lending businesses – from mortgages to commercial loans – one of the largest investment banks on Wall Street and insights into multinational corporations through its capital markets and treasury services operations.

JP Morgan executives are cautiously optimistic that the economy is finally on a healthy path after 19 months of pandemic-related impacts on businesses. They predicted loan demand may not substantially change until next year at the earliest but see early signs of a return to pre-pandemic activities.

Dealmaking picks up

Capital markets businesses helped big Wall Street banks through the pandemic, as investors scrambled to react to news about the pandemic and companies needed help raising capital or hedging businesses risks. More recently, as trading revenue has abated, dealmaking activity has picked up, with companies deciding to combine or go public through special purpose acquisition companies (SPACs), and fledgling companies listing shares for the first time.

Should I buy JP Morgan Chase shares?

The current consensus among 27 polled investment analysts is to buy stock in JPMorgan Chase & Co. The 23 analysts offering 12-month price forecasts for JPMorgan Chase & Co have a median target of 175.00, with a high estimate of 200.00 and a low estimate of 110.00. The median estimate represents a +7.36% increase from the last price of 163.01, according to CNN Business.

Bank of America Q4 Earnings beat estimates, boosted by advisory fees

Bank of America reported third-quarter earnings Thursday that blew past analyst expectations, with a rise in profit-driven by record advisory fees and a strong performance from its investment banking business.

The US lender released $1.1 billion in reserves and booked an income tax benefit of $624 million, which helped lift its results.

Predictably, the Bank of America’s global banking saw a 23 rise in investment banking fees to a near-record $2.2 billion, as advisory fees shot up 65% to a record high of $654 million.

BoA reported earnings per share of $0.85 above expectations of $0.71 for the quarter and $0.51 a year ago. Revenue rose to $22.8 billion from expectations of $21.7 billion for the quarter and $20.3 billion a year ago.

Net income rose 58% to $7.7 billion, or $0.85 per share, for the quarter ended September 30. That topped an average estimate of $6.06 billion or $0.71 per share from analysts polled by Bloomberg.

Those figures compare with earnings of $9.2 billion and $1.03 per share in the previous quarter for the bank, which counts Warren Buffett’s Berkshire Hathaway as its largest shareholder with a 12% stake. It earned $4.9 billion and $0.51 per share in the same period last year, during the coronavirus restrictions. Revenue in its global wealth and investment management rose 17% to $5.3 billion, driven by higher asset-management fees, and growth in loans and deposits.

How did the shares move?

Bank of America’s shares rose 2.5% to $44.25 per share after the earnings release in premarket trading Wednesday. The stock is up 42% year-to-date, compared with a 16.2% gain in the S&P 500.

Should I buy Bank of America shares?

The current consensus among 27 polled investment analysts is to buy stock in Bank of America Corp. The 23 analysts offering 12-month price forecasts for Bank of America Corp have a median target of 45.00, with a high estimate of 52.00 and a low estimate of 34.00. The median estimate represents a +0.96% increase from the last price of 44.57, according to CNN Business.

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