JPMorgan Chase (JPM) and Wells Fargo (WFC) reported better-than-expected fourth-quarter results early Friday, with Citigroup (C) on pressure before opening, in the middle of the Federal Reserve’s plan to raise interest rates in the coming months and the impact of omicrons on the economy. JPM shares and Citigroup fell in pre-market trading while Wells Fargo rose.
The reports come as expectations of changes in Federal Reserve policy send bond yields and interest rates higher. Higher interest rates benefit banks, which make more money on the loans they provide. CFRA Research analyst Kenneth Leon says in a recent note to customers that consumer loan activity is improving, but is still below pre-pandemic levels. In March 2020, the bank’s consumer loans peaked at $ 859 billion and then fell to a low of $ 743 billion in April 2021. Bank balances for consumer loans in December 2021 are just under $ 800 billion.
Meanwhile, large banks will also be affected by a decline in consumption consumption as inflation rose in Q4 and the omicron tore through the country.
“The near term brings uncertainty and some weakness on the path of consumer spending, due to the seasonally slow period and potential omicron effects,” Leon said. “We think this could be temporary if the omicron variant can be put under control, especially as we enter the spring season 2022.”
The CPI inflation rate reaches a new 39-year high, but the Dow Jones rises
Investment activity remains high. Stock market activity increased by 19% year-over-year to $ 1.3 trillion in 2021, marking the strongest period since listings began in 1980, Leon wrote.
“Stock trading volumes and transaction fees have increased significantly with greater investor participation, with stock inflows and active trading from private investors,” Leon wrote. “We believe investment banks can realize 8-10% plus year-over-year growth in debt insurance fees from new issues, driven by high-yield corporate bond issues.”
Elsewhere, large banks will have less cash reserves to release to the bottom lines this quarter. They had built up huge cash reserves at the beginning of the pandemic, and predicted default on loan repayments when people lost their jobs. However, many of these reserves were not needed and released back to the bottom lines in recent quarters. As a result, there are fewer of these funds to bring over this quarter to increase profits.
Estimate: FactSet analysts saw JPMorgan earnings of $ 3 per share, down 21% from the same period last year. Revenue was seen at 29.78 billion dollars, a decrease of 1.3% from last year.
Results: JPMorgan’s earnings per share fell to $ 3.33 per share, while earnings rose to $ 30.35 billion.
JPMorgan’s revenue received a boost from releasing $ 1.3 billion from loss reserves. Lending picked up, especially in the asset management department.
Bank shares: JPM shares
Shares fell 3.2% to 162.90 early Friday on stock trading. The JPM stock has a flat buying point of 173.06, according to MarketSmith chart analysis.
The shares have risen in recent days, after rising above the 50-day line on 4 January. The relative strength of the JPM stock is trending upwards. Its RS rating is 77 out of the best possible 99. The EPS rating is 79.
Wells Fargo revenue
Estimate: Analysts expected Wells Fargo earnings of $ 1.04 per share, up 63% from the same period last year. Impressions are needed for revenue of $ 18.79 billion, an increase of 4.8%.
Results: GAAP earnings came in at $ 1.38 per share, while earnings rose to $ 20.86 billion.
Wells Fargo shares
Shares rose 2.7% to 57.50 early Friday. The WFC stock is expanding after an eruption in early January above a flat buy point of 52.66. The WFC stock has an RS rating of 95 and an EPS rating of 68. Its relative strength line is trending upwards, reaching heights not seen since April last year.
Estimate: Analysts see Citigroup’s earnings per share at $ 1.72, up 16.8% over the quarter last year. Revenue is expected to increase 2.1% to $ 16.85 billion.
Results: Come back Friday.
Earlier on Friday, Citigroup agreed to sell $ 2.7 billion in banking in four Southeast Asian countries. Its operations in Indonesia, Malaysia, Thailand and Vietnam are acquired by Singapore-based United Overseas Bank.
The shares fell 1.7% to 66.60 in pre-market trading. The Citigroup share climbs to a double-bottom buying point of 74.74. Shares climbed back above the 50-day limit after bottoming in December.
Citigroup’s relative strength line is moving upwards again after falling for several weeks. The RS rating is still only 39, while the EPS rating is a solid 89.
Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
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