发帖
雷达卡
https://www.ft.com/content/4ad6fe30-689a-11e7-9a66-93fb352ba1fe
Investment Banking Add to myFT
If earnings were so good, why did bank shares fall?
JPMorgan, Citigroup and Wells Fargo tumble as earnings season kicks off
JULY 15, 2017 by: Alistair Gray and Laura Noonan in New York and Martin Arnold in London
From the global headquarters of JPMorgan Chase in midtown Manhattan Jamie Dimon presented the bank’s highest ever haul of quarterly profits, a total of 7bn dollars. Downtown, Michael Corbat at Citigroup hailed its “best investment banking performance in seven years” as the bank defied fears of a steep fall in bond trading. And on the west coast Tim Sloan, who runs Wells Fargo, unveiled the scandal-hit bank’s first rise in earnings in seven quarters.
Financial markets, however, were unimpressed. Even though analysts had reined in profit forecasts in the weeks ahead of the earnings releases, an index of S&P 500 bank stocks dipped as much as 2.4 per cent in early trading — equivalent to 34bn dollars of lost market value.
“I’m not sure what people wanted,” said Christopher Wheeler, analyst at Atlantic Equities. “They all beat expectations.”
The sell-off breaks a pattern that investors have come to expect. Typically banks post results that are better than Wall Street analysts have pencilled in and traders oblige by bidding up the shares.
The cautious reaction is a sign, in part, of how much expectations for the sector have risen since Donald Trump’s election last November spurred hopes of a more bank-friendly environment. “The expectations are higher,” said Saul Martinez, banking analyst at UBS.
James Chappell, analyst at Berenberg, said shares in the banks were now looking “expensive” after a strong rally since Federal Reserve gave banks the go ahead to make their biggest cash distributions to shareholder since the financial crisis.
To be sure, results at both JPMorgan and Citigroup showed weakness from their investment banks. They were both held back by the recent quiet in financial markets, which means less business for their trading desks on Wall Street, the City of London and other financial centres.
At JPMorgan, for instance, markets revenues fell 14 per cent from a year ago. The haul from fixed income dropped 19 per cent.
A trading slowdown had been expected, however, and in Citigroup’s case, the figures were not as weak as feared. Revenues from its fixed-income trading business declined only 6 per cent. And its investment banking unit, which advises on M&A and issues debt and equity for companies, increased its revenues by 22 per cent.
Moreover, both banks were able to offset the pressures in trading with more resilient performance from retail banking.
In an unfavourable environment for Wall Street, Main Street has proved to be ballast. “The US consumer remains healthy, evidenced in our strong underlying performance in consumer and community banking,” said Mr Dimon, JPMorgan’s chief executive.
Default rates remain low. Net charges for bad debts at Wells Fargo came to just 0.27 per cent of the bank’s loan book, down from 0.39 per cent a year ago.
Higher interest rates have also allowed bank to push up charges for borrowers while leaving deposit prices little changed. At Wells, this helped the net interest margin — an important measure of profitability — rise 3 basis points from the first quarter to 2.90 per cent.
Nevertheless, analysts raised a series of concerns on Friday, both about some of the detail disclosed by particular banks and also about the macroeconomic outlook that is so crucial for the fortunes of the sector.
At Wells, concerns focused on weakness in lending volumes that have been seen across the US banking industry in recent months. The bank had 957bn dollars worth of loans outstanding at the end of the quarter, down 982m dollars from March.
Car loan originations slumped 45 per cent from a year earlier as the bank tightened underwriting standards. Lenders have become more cautious about what has been a fast-growing corner of the consumer finance market as Americans borrow more to buy bigger and better vehicles.
JPMorgan, meanwhile, cautioned that its net interest income for this year would be at least 500m dollars less than it had expected. While Marianne Lake, chief financial officer, described the downward revision as “noise”, the guidance raised eyebrows among some analysts.
Mr Wheeler claimed that the lower target from the biggest US bank by assets had “spooked the market”.
Perhaps the most important factor that weighed on bank stock prices, however, had nothing to do with the comments from executives nor the quarterly financial results.
Macroeconomic data published on Friday showed US inflation at the consumer level cooled last month while retail sales fell short of estimates, pushing Treasury bond yields lower.
Lower interest rates are bad news for banks, which make more money if they can charge borrowers more.
The biggest faller among the big six banks was Bank of America, the second-biggest US bank by assets, which has a large retail business that is especially sensitive to interest rates. It is due to report earnings next week. Its shares slid as much as 3.3 per cent.
“Where rates go, banks tend to follow,” as Brian Foran, analyst at Autonomous, put it.
Additional reporting by Adam Samson
京公网安备 11010802022788号
