Bank
earnings season is around the corner, and most banks are expected to continue their forecast-beating streak, according to
Barclays.
The Analyst
Barclays analyst Jason Goldberg previewed big banks'
Q4 earnings.
The Thesis
Higher loan growth, higher net interest margins, the eliminations of the DIF surcharge and active stock buybacks are likely
to more than offset weak fee income, market-sensitive products and mortgage revenue, Goldberg said in a Thursday
note.
Consensus EPS estimates have come down recently, the analyst said, with most market-sensitive names such as Goldman
Sachs Group Inc (NYSE: GS), State Street
Corp (NYSE: STT), Morgan Stanley
(NYSE: MS), Citigroup Inc (NYSE: C), JPMorgan Chase & Co. (NYSE: JPM) and Northern Trust Corporation (NASDAQ: NTRS) seeing at least 2-percent reductions.
M&T Bank Corporation (NYSE: MTB),
Comerica Incorporated (NYSE: CMA) and
Wells Fargo & Co (NYSE: WFC) are the only
banks to see upward adjustment in consensus estimates over the past 30 days, he said.
The increase may have been due to PaP gain, Goldberg said.
Barclays is 5 cents below consensus for SunTrust Banks, Inc. (NYSE: STI), PNC Financial Services Group Inc (NYSE: PNC), Capital One Financial Corp. (NYSE: COF) and Ally Financial Inc (NYSE: ALLY).
The analyst's estimates are the furthest below consensus for Goldman and Wells Fargo.
Relative to Q3, Barclays expects an increase in net interest income that's reflective of improved loan growth, wider
net interest margins, varied fee income trends, controlled expenses, and higher loan loss provisions, with benign, asset-quality
metrics and active share repurchases.
The reduction in the DIF
surcharge will bring down expenses for banks in Barclays' coverage universe by 1.2 percent in Q4, Goldberg said.
On the flipside, the analyst said he expects increased marketing spending, technology investments, charges related to bank
closures and losses from securities portfolio repositioning as factors impacting performance in the near-term.
This should help operating leverage in 2019, Goldberg said.
Despite an anticipated slowdown in GDP, Barclays expects U.S. large-cap bank stocks to rise and outperform the S&P 500
Index, especially after the steep sell-off into the end of 2018.
" ... We expect our coverage to benefit from continued earnings/book value growth, active capital management, ‘regulatory
finalization' and an increasing benefit from leveraging technology/economies of scale," the analyst said.
The Price Action
The Financial Select Sector SPDR Fund (NYSE: XLF) was rising 0.14 percent at $24.48 at the time of publication Friday, while the
iShares Dow Jones US Financial (NYSE: IYF)
was near-flat at $109.90.
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