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4 Banks Riding High on Impressive Q3 Earnings

Manaswita Ghosh Dutta

The third-quarter 2019 earnings season began earlier this week with some of the country’s top banks reporting solid earnings. Bank stocks performed remarkably well despite headwinds such as the Federal Reserve slashing interest rates twice during the said quarter and slowdown in global growth bothering business and customers alike.

Therefore, it would be prudent to take a look at some of these bank stocks.

Financial Sector Flourishes

The financial sector has witnessed decent growth this year, with the Financial Select Sector SPDR Fund (XLF) rising 17.7% on a year-to-date basis. What’s more, the sector ranks third in witnessing maximum growth (54.8%) among the broader S&P 500 sectors in the last five years.

Specifically in the third quarter, investment banks with large retail operations such as JPMorgan Chase & Co. JPM and Bank of America Corporation BAC outperformed despite the low-lending rate scenario.

The central bank reduced interest rates in July and September because of weakness in U.S. and global economy, which were largely the results of the ongoing U.S.-China trade war. The current benchmark rates are in the range of 1.75% to 2%.

As of Oct 16, Q3 results from 36.8% of the financial sector’s total market capital surfaced. About 85.7% of these companies have beaten EPS estimates and 64.3% have outpaced revenue estimates, per a Zacks report.

Our Choices

We have selected four financial services companies which reported stellar third-quarter 2019 earnings. All these companies carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

JPMorgan Chase’s third-quarter 2019 earnings of $2.68 per share surpassed the Zacks Consensus Estimate of $2.44 on the back of impressive performance in underwriting business, increase in mortgage banking fees and higher bond trading income. A jump in wholesale and credit card loans boosted the bank’s net interest income.

The bank’s home lending revenues added 12% on an annualized basis as well, mainly because of greater mortgage origination volume. Credit card sales volume increased 10% and merchant processing volume rose 11%. In addition, increased client activity across products led fixed income trading revenues to jump 25%. The bank’s net income rose 8% to $9.1 billion. (Read more)

Bank of America’s adjusted Q3 earnings of 75 cents per share surpassed the Zacks Consensus Estimate of 50 cents. The bank witnessed such striking earnings on the back of strong growth in its consumer and advisory businesses.

The bank’s trading revenues (excluding DVA) rose 4% as both equity trading income and fixed income trading revenues picked up on a year-over-year basis. Net revenues of $22.8 billion also beat the Zacks Consensus Estimate of $22.2 billion.

Bank of America’s three out of four main divisions reported revenue gains because of its global banking business growing 8% to $5.2 billion in Q3. Higher investment banking fees was the primary driver behind this growth. (Read more)

Morgan Stanley’s MS Q3 adjusted earnings of $1.21 per share outpaced the Zacks Consensus Estimate of $1.10. The bank reported net revenues of $10.03 billion, which witnessed a 2% rise from third-quarter 2018. In addition, it also outpaced the Zacks Consensus Estimate of $9.68 billion.

Morgan Stanley called Q3 of 2019 its best third quarter for revenues in a decade. The bank witnessed solid increase in trading and investment banking revenues. The company’s bond-trading desks alone posted $1.43 billion in Q3 revenues, which were beyond expectations. Wealth management generated $4.36 billion in revenues.

In addition, Morgan Stanley’s advisory fees rose 8% and underwriting income gained 4%. Finally, an increase in loan balance drove net interest income higher, which supported the top line. (Read more)

Citigroup Inc. C reported quarterly earnings of $1.98 per share, which beat the Zacks Consensus Estimate of $1.96. The bank also reported revenues of $18.57 billion for Q3, which were higher than revenues of $18.39 billion in third-quarter 2018.

Citigroup’s fixed-income, currency and commodities trading segment got a boost from stronger demand from clients (corporate and investor) and higher rates in Q3. (Read more)

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