Bank Earnings Preview: Citigroup, JPMorgan Chase, Wells Fargo
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After a 3-month hiatus, earnings season is back in full swing on Monday, April 8 beginning with Alcoa after the market close. The news flow for the remainder of the week is relatively slow, but activity picks up on Friday with earnings from several major banks.
Bank earnings will garner particular interest following the recent results of the Federal Reserve stress tests, also know as the Comprehensive Capital Analysis and Review. The C-CAR testing was implemented following the 2008-09 financial crisis and includes both quantitative and qualitative factors for assessment. Fourteen banks received approval, two received conditional approval, while a final two received objection.
With the broader market and financial stocks at multi-year highs, here are three major banks that report earnings in coming days:
Citigroup (NYSE: C)
Monday, April 15 before market open; Revenue $20.1B / Earnings $1.18
On March 14, Citigroup announced that the Federal Reserve Board did not object to it’s proposed capital allocation plan of a $1.2 billion stock buyback program and $0.01 quarterly dividend through the first quarter of 2014. All of the major banks were required to submit the results of their November 2012 test scenarios to the government no later than January 14. The Federal Reserve provided a response to the banks 60 days later.
For the current quarter, investors will be looking for new information on Citigroup’s turnaround plans and an update on Citi Holdings, the legacy bank which holds the unwanted liabilities that lead to the 2008-09 financial crisis. As of September 30, Citi Holdings accounted for 9% of Citigroup’s balance sheet and has reduced the bank’s earnings power coming out of the crisis.
Following former CEO Vikram Pandit’s surprise resignation in October 2012, Michael Corbat was installed as the new Chief Executive Officer. Corbat previously served as of Citi’s Europe, Middle East, and Africa divisions, and has been with the firm since he graduated from Harvard University in 1983. I believe the installation of Corbat as CEO is positive for the stock going forward, as a number of institutional investors had a visible displeasure with Pandit.
On March 11, Swiss investment firm UBS upgraded Citigroup to Buy from Hold with a new $62 price target. UBS believes that reduced risk-weighted assets from Citi Holdings will help free-up capital to help Citigroup with its turnaround initiatives. Deutsche Bank also reiterated its Buy rating on Citigroup following a meeting with management on March 19. The German investment firm raised its price target on Citigroup to $53 from a previous $46, stating the bank could earn in excess of $6 per share by 2015.
In other news, the Securities and Exchange Commission notified both Citigroup and JPMorgan Chase (earnings preview below) that they are not required to hold votes at their annual shareholders meetings over whether the banks are too large.
JPMorgan Chase (NYSE: JPM)
Friday, April 12 before market open; Revenue $25.9B / Earnings $1.39
On March 14, the Federal Reserve announced that it did not object to JPMorgan’s capital plan for the 2013 fiscal year. However, the bank regulator did state that JPMorgan is required to submit a new capital plan by the end of the calendar third quarter in order to address weaknesses in the bank’s “capital planning processes.”
With respect to shareholders, JPMorgan is approved to buyback $6 billion in stock between April 1, 2013 and March 31, 2014. In addition, the board of directors plans to raise the bank’s quarterly dividend to $0.38 from a previous $0.30, an increase of more than 26%. During 2012, JPMorgan retained the top investment banking position with $24.1 billion in revenues, followed in second place by Goldman Sachs.
A number of investment firms have spoken positively on JPMorgan ahead of Friday’s earnings release. In particular, analysts at Evercore upgraded the largest investment bank to Overweight from Equal Weight with a $55 price target.
In other news, the New York Times is reporting that JPMorgan’s board of directors is planning to defend CEO Jamie Dimon in an effort to retain both the chief executive and chairman roles. The article comes ahead of next month’s shareholder meeting, where Dimon is likely to receive further media attention. Often referred to as the “golden boy” on Wall Street, Dimon received unwanted flack following the London Wale incident which resulted in a subsequent pay reduction.
Wells Fargo (NYSE: WFC)
Friday, April 12 before market open; Revenue $21.6B / Earnings $0.88
Following the Federal Reserve’s C-CAR investigation, Wells Fargo confirmed it’s 2013 capital plans including a quarterly dividend of $0.30, a 20% increase over the $0.25 dividend payable on January 30. Wells Fargo also plans to raise its stock buyback plan for 2013 over the prior level approved for the 2012 fiscal year.
While I wrote above that JPMorgan remains the top investment banking firm, Wells Fargo continues to dominate the residential mortgage market. The San Francisco, CA headquartered bank underwrote 28.8% of all home loans issued nationwide during 2012, a dramatic increase from 11.2% in 2007, the year before the bank acquired Wachovia.
Ahead of Friday’s earnings release, several analysts have expressed optimism on Wells Fargo for the next 12 months. Industry veteran Dick Bove of Rafferty Capital Markets upgraded the stock to Buy from Hold on March 5. Barron’s Magazine wrote positively a week later, stating Wells and Bank of America were the two biggest winners following the Fed’s stress test results. BofA reports Q1 2013 earnings on April 17.
Finally, American banks have become the unfortunate victim of cyber attacks, with Wells Fargo posting on its Facebook page as recently as April 4 that the bank was receiving “denial of service” attacks. A DoS attack is akin to a cyber traffic jam, where online criminals flood a website with misleading instructions.
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John Macris has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Citigroup Inc , JPMorgan Chase & Co., and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!
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