MW JPMorgan, Citi, Wells Fargo and Goldman results may boost banks stocks further
By Steve Gelsi
Q4 profit updates on tap amid as bullish sentiment remains after a strong 2024
The largest banks in the U.S. may justify further gains in stock prices if their earnings updates in the coming days include any upside surprises around loan growth or a boost from lighter regulations expected by the Trump administration.
Wall Street analysts are bullish on the sector overall, even after recent pullbacks on interest-rate jitters and the tapering off of a post-election day rally in the sector after favorable moves on the stress tests and capital requirements for banks in recent weeks.
In another positive sign of strong earnings results from the big banks, analysts' profit estimates for all but Citigroup increased during the quarter from where they stood on Sept. 30, according to FactSet data.
On the heels of less-than-stellar stock performances in 2022 and 2023, bank stocks were hot in 2024 as the Federal Reserve cut interest rates, and helped ease the cost of borrowing.
At the same time, capital-markets activity has been picking up, along with mergers and acquisitions.
Wall Street will be closely watching the big banks on their deal pipelines and whether the sector merits higher stock prices.
Against this backdrop, JPMorgan Chase & Co. $(JPM)$, $Citigroup Inc(C-N)$. (C), Wells Fargo & Co. $(WFC)$ and Goldman Sachs Group Inc. $(GS)$ kick off the fourth-quarter earnings season for the big banks on Wednesday.
$Bank of America Corp(BAC-N)$. $(BAC.SI)$ and Wells Fargo & Co. (WFC) will report their results Thursday.
Among the group, Goldman Sachs turned in the strongest stock performance in 2024 with a gain of 48.4%, followed by a 42.7% rise from Wells Fargo, a 40.9% gain by JPMorgan Chase, a 36.8% jump by Citigroup, 34.8% gain by Morgan Stanley and a 30.5% increase from Bank of America.
KBW analyst David Konrad said he expects the most potential earnings upside from the banks, which share the designation under international banking rules as global systemically important banks, or G-SIBs.
"The recent pullback in bank stocks provides an opportunity for investors to selectively add exposure ahead of what we believe will be fairly constructive 2025 guides," Konrad said in a research note published Thursday. "The prospect of deregulation has allowed for the larger banks to hold onto more of the recent gains."
The recent resignation of Michael Barr as vice chair of supervision of the Fed has fueled expectations that banks may step up their buybacks and dividends with extra capital from less-demanding capital requirements now expected in the sector.
Also read: Why bank stocks care that Michael Barr is stepping down as top Fed banking cop
In another regulatory plus for banks, the U.S. Federal Reserve last month proposed more transparency in its annual bank stress tests imposed after the 2008 global financial crisis.
See: Federal Reserve proposes more transparency in bank stress tests, but banks still sue
"We expect continued momentum for the G-SIBs with revenue tailwinds from capital markets and higher-for-longer interest rates," Konrad said. "Moreover, we expect strong operating leverage as this group hashistorically over-invested relative to the industry overall."
Joining the positive sentiment around big banks, Truist Securities analyst John McDonald on Monday initiated coverage of the big banks, with buy ratings for Wells Fargo, Bank of America and Citigroup, and a hold rating on JPMorgan Chase.
"The big banks are positioned to leverage embedded offense, cyclical recovery and capital flexibility to drive organic franchise expansion, double-digit earnings per share growth and attractive return on tangible common equity," McDonald said.
JPMorgan Chase & Co. to set the tone
As the largest U.S. bank, JPMorgan Chase often sets the tone for quarterly earnings.
The bank has been cautious in recent quarters given the global upheaval in the geopolitical scene that continued in recent months with the U.S. election and political changes in France, Germany, Canada and South Korea, as well as the ongoing wars in Gaza, Lebanon and Ukraine.
Still, analysts have been growing more bullish on the bank's earnings prospects.
The FactSet consensus estimate for the bank's fourth-quarter earnings stands at $4.09 a share, up from $3.71 a share at the start of the quarter.
Analysts expect the bank to generate fourth-quarter revenue of $41.43 billion, up from the year-ago actual figure of $38.57 billion.
Marianne Lake, chief executive of consumer and community banking, said at an industry gathering last month that the U.S. economy continues to be resilient.
"Sentiment from our corporate clients is perhaps, unsurprisingly, that confidence is moving higher and sort of somewhat notably over the last couple of months, recessionary fears are fading or faded a lot," Lake said. "Inflationary concerns are present but not really dampening ... a sort of broadly cautiously optimistic tone coming into 2025, notwithstanding that there's significant uncertainty about how things will play out."
Bank of America's stock upgraded ahead of earnings
Bank of America is expected to report fourth-quarter earnings of 77 cents a share, down slightly from a projection of 80 cents a share at the start of the fourth quarter, according to FactSet estimates.
The bank's revenue is projected to be $25.12 billion, up from its reported level of $23.5 billion a year ago.
Analysts have singled out Bank of America as a top pick, as the bank expects its net interest income to grow.
Bank of America picked up a buy rating from Truist last week and upgrades to buy by analysts UBS and HSBC.
HSBC analyst Saul Martinez said share-price pressure in early January presented a buying opportunity for Bank of America's stock.
"The recent pullback provides an opportunity to add exposure to a market leader with an attractive earnings and profitability outlook at an attractive valuation," Martinez said.
This week, UBS analyst Erika Najarian upgraded Bank of America's stock to buy from neutral and said it could gain another 20% this year.
Wells Fargo earnings expectation edges up
Analysts expect Wells Fargo to earn $1.35 a share in the fourth quarter, up from the expectation of $1.26 a share at the start of the quarter.
Revenue is seen at $20.58 billion, up slightly from the $20.48 billion reported in the year-ago quarter.
Chief Executive Charles Scharf said in December that the bank has been seeing "continued strength across both consumer and businesses without a lot of change."
While the lower-end consumer continues to struggle more, "you don't see that bleeding into other products" as consumer credit holds up well, Scharf said.
Analysts expect Citigroup to swing to a profit
Citigroup expected to report a profit of $1.22 a share, which is up slightly from the analyst view of $1.19 a share at the start of the fourth quarter.
That's a big improvement over year-ago quarter, when Citi posted a loss of $1.16 a share amid its restructuring efforts.
Analysts expect Citigroup to report revenue of $19.51 billion, up handily from the year-ago level of $17.44 billion.
Analysts have been singling out Citigroup for praise, with KBW praising the stock as a "top idea" among the big banks.
This week, Barclays analyst Jason Goldberg upgraded Citigroup to overweight from equal weight and said the stock offers value.
Goldman Sachs, Morgan Stanley poised for Wall Street rebound
Profit expectations for both Goldman Sachs and Morgan Stanley have grown more bullish with the latter getting the larger of the two boosts from analysts during the quarter.
With large wealth-management units and exposure to Wall Street's deal-making machinery, both banks are poised to benefit as mergers, initial public offerings and capital markets activity ramp up.
Morgan Stanley is expected to earn $1.70 a share in the fourth quarter. That's up from the analyst projection of $1.51 a share at the start of the period.
Analysts expect Morgan Stanley's fourth-quarter revenue to climb to $15.03 billion from its reported figure of $12.9 billion in the year-ago quarter.
Goldman Sachs is expected to earn $8.21 a share, up from the estimate of $8.08 a share at the start of the quarter.
The investment bank's revenue is expected to be $12.36 billion, up from $11.32 billion in the year-ago quarter.
-Steve Gelsi
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January 13, 2025 07:55 ET (12:55 GMT)
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