2023-04-13 15:01:44 ET
With concern over recent banking turmoil, investors will be keenly attuned to what the first big banks' Q1 earnings reveal on Friday. In the waning three weeks of the quarter, the failures at Silicon Valley Bank, Silvergate Capital, and Signature Bank had bank customers and investors nervous about the stability of the financial system.
Chiefly, analysts will hone in on deposit levels. For the megabanks, such as JPMorgan Chase ( JPM ) and Wells Fargo ( WFC ), deposits are expected to rise as the customers of some smaller, regional banks shift uninsured deposits to larger institutions.
Last week, Raymond James analyst David Long upgraded Wells Fargo ( WFC ) on the expectation that the San Francisco-based bank will benefit from the banking turmoil.
"The largest banks should show the best resliency in deposits, business models, and balance sheets (less CRE), though we lower estimates/price targets for most of our universe due mostly to funding and buybacks, Goliath is winning," wrote Wells Fargo analyst Mike Mayo in his Q1 earnings preview for large-cap banks.
Morgan Stanley bank analysts, headed by Betsy Graseck, will be focused on outlooks more than actual Q1 results. "We've been saying for well over a year that high inflation coupled with quantitative tightening is a tough environment for banks," Graseck said in a note to clients. "Inflation is driving up loan growth and QT is shrinking deposits."
The Morgan Stanley analysts reduced 2023 EPS estimates a median of 4% and 2024 EPS estimates a median of 15% to reflect increasing deposit betas driving down net interest margins, tightening lending standards slowing loan growth and increasing net charge-offs, and slowing stock buybacks.
Heading into the banks Q1 earnings, Graseck prefers JPMorgan Chase ( JPM ), Wells Fargo ( WFC ) and Regions Financial ( RF ). She sees the bank delivering 340 basis points of positive operating leverage in 2023, with revenue up 11% and expenses rising 8% Y/Y. "This is a significant inflation from the last two years of negative operating leverage," she said. Also, the bank should benefit from increasing its deposit share across the U.S. with median deposit share up 1.5% across the top 50 U.S. MSAs over the last five years, the analyst said in a note.
On Regions ( RF ), Morgan Stanley expects "the value of RF's deposit base, which has a skew towards insured, lower balance consumer deposits, will come through as a key driver of NII (net interest income) performance this year." With the bank building to NII growth of 13% to 15% y/y in 2023, Morgan Stanley's forecast calls for growth at the upper end of that range (15%), materially above its peers, Graseck said.
"We believe the most important 1Q223 issues are deposit balances, funding, and NIM, expecially after the outflows related to SVB's failure," Wells Fargo's Mayo and colleagues said in a recent note. They like JPMorgan Chase ( JPM ), Citigroup ( C ), Goldman Sachs ( GS ), and PNC Financial ( PNC ).
Big six consensus and track records:
Looking at the six largest U.S. banks, it's evident that analysts have lowered their expectations in recent months, though they appear the most confident in JPMorgan Chase ( JPM ).
JPMorgan Chase 's ( JPM ) Q1 consensus estimate has increased 1.8% in the past three months , with eight upward revisions and three downward ones, and edged up 0.8% in the past six months. The Q1 EPS consensus stands at $3.37, down from the $3.56 adjusted EPS it reported for Q4 2022 but up from $2.63 in Q1 2022. Out of the 12 past quarters, the bank has missed the EPS consensus in three of them.
Bank of America 's ( BAC ) Q1 EPS consensus estimate has slipped 2.2% in the past three months and 7.4% in the past six months, to $0.83. That's down slightly from $0.85 in Q4 2022, but up from $0.80 in Q1 2022. BofA has exceeded the average Wall Street estimate in all but two quarters of the past 12.
Citigroup 's ( C ) Q1 EPS consensus estimate has slid 0.1% in the past three months , and 7% in the last six months. The EPS current consensus of $1.68 compares with Q4 adjusted EPS of $1.10 and $2.02 in the year-ago quarter. In the past three years, Citi's quarterly earnings have missed the average analyst estimate three times , with the most recent being Q4 2022.
Wells Fargo ( WFC ) is expected to earn $1.14 per share in Q1 2023, according to the consensus estimate, which has dropped 5% in the past three months and 4.9% in the past six months. By comparison, WFC earned $1.46 per share when excluding a number of notable items, in Q4 2022. In the year-ago quarter, the bank posted $0.88 EPS. In the past 12 quarters, Wells Fargo has only missed the consensus estimate in one , Q2 2020.
The average analyst estimate for Goldman Sachs 's ( GS ) Q1 EPS of $8.17 fell 5.4% in the past three months and 16.3% in the past six months. The Q1 2023 estimate of $8.17 compared with $3.32 in the prior quarter and $10.76 in the year-ago period. As for its historical performance, Goldman has trailed the consensus estimate in three quarters of the last 12, with the most recent miss in Q4 2022.
Morgan Stanley ( MS ) is expected to deliver Q1 EPS of $1.69, compared with $1.31 in the prior quarter and $2.05 in the year-ago quarter. The Q1 EPS consensus estimate has declined 6.4% in the past three months and 11.9% in the last six months. The bank's quarterly EPS has exceeded the consensus in all but two quarters of the last 12.
Bank earnings calendar:
Friday, April 14 premarket: JPMorgan Chase ( JPM ), Wells Fargo ( WFC ), Citigroup ( C ), PNC Financial ( PNC ), BlackRock ( BLK )
Monday, April 17 premarket: M&T Bank ( MTB )
Tuesday, April 18 premarket: Bank of America ( BAC ), Goldman Sachs ( GS )
Wednesday, April 19 premarket: Morgan Stanley ( MS ), U.S. Bancorp ( USB ), Citizens Financial Group ( CFG ); after-the close: Discover Financial Group ( DFS )
Thursday, April 20 premarket: American Express ( AXP ), Blackstone ( BX ), KeyCorp ( KEY ), Huntington Bancshares ( HBAN ), Truist Financial ( TFC ), Fifth Third Bancorp ( FITB ); after-the-close: Bank OZK ( OZK ), Comerica ( CMA )
Friday, April 21 premarket: Regions Financial ( RF )
Thursday, April 27 , premarket: New York Community Bancorp ( NYCB ) (estimated) ;after-the-close: Capital One Financial ( COF ), Axos Financial ( AX )
For further details see:
Banks Q1 earnings focus on deposit levels, outlook