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Challenges Stack Up For Big Banks Ahead Of JP Morgan, Wells Fargo, Citigroup
(look for fixed-income to continue to take a hit as in Q4-'18, among other things)
Lower trading volume-(cough!-been a theme all quarter). Falling mortgage rates. An inverted Treasury yield curve. A slowing U.S. and global economy. The odds seem pretty stacked against big banks on multiple fronts as earnings season starts tomorrow.
Making things even more challenging, many U.S. big banks enter Q1 reporting time facing tough comparisons to a year ago and with less support from the 2017 U.S. tax reform legislation that gave many firms a boost early last year.
The first results of all this turbulence land at Wall Street’s front door on Friday morning when JP Morgan Chase (JPM) and Wells Fargo (WFC) report Q1 earnings before the opening bell. Citigroup (C) steps to the plate Monday morning.
Other big banks also report next week.
A common investor misconception is to think of the big U.S. banks as one entity responding to the same cues. While sometimes the bank stocks move in sync on news developments, it’s also important to distinguish them, because they’re not a solid bloc. For instance, falling mortgage levels probably mean more for Wells Fargo than the other banks reporting Friday and Monday, because WFC has a huge retail mortgage business.
Meanwhile, the global stock trading environment—which might be a bit weak this year due in part to falling volatility—could pose a bigger risk to JP Morgan Chase with its huge trading business. If the economy is weakening, that could hurt Citigroup with its credit card exposure.
The investment banking businesses at JPM and WFC will probably get a close look from investors amid market talk that trading has been subdued in the Q1 vs. a year ago, when volatility was elevated. The first quarter this year featured a government shutdown, followed by a Fed pivot that pretty much killed volatility, Briefing.com noted. That might have worked against banks from a trading standpoint. Recent stock market volume has been pretty thin.
Also, Briefing.com said, the market closed last year in a tailspin, which might have sent some traders and investors to the sidelines. With the Securities & Exchange Commission (SEC) closed for part of Q1 due to the government shutdown, that might have hurt the underwriting business for banks, though initial public offerings (IPOs) did start to pick up by the end of Q1.
At the same time, the China tariff battle, Brexit, and the inversion of the yield curve in late March all might have caused uncertainty in the business world, perhaps limiting the market for banks’ services. How all this plays out in earnings will soon become clear.
Meanwhile, mortgage rates have fallen significantly from recent highs near 5%, with average 30-year mortgages at around 4.3%, according to BankRate.com. While it’s possible that lower rates might be giving the moribund housing market a little new life in quarters to come—which could potentially help lenders—the lower rates might also eat into some of the big banks’ profit margins. Just a year ago, rates were on the rise and there was a lot of hope for an improved mortgage business. It might be interesting to hear what WFC executives have to say on this topic.
Speaking of WFC executives, the company recently announced the retirement of CEO Tim Sloan. There’s a lot of debate right now in the financial world about who WFC should consider as a replacement, especially since the bank said it wants to hire an outsider. Sometimes that can cause uncertainty, because historically the big banks have tended to elevate insiders to the top position. Perhaps we can get more clarity about the situation on WFC’s earnings call tomorrow.
The other thing that investors might want to stay tuned for, especially on Friday, is what bank CEOs have to say about the economy in general. JP Morgan’s Jamie Dimon is one financial leader whose comments often get a close read on earnings day, so we’ll wait and hear if he has anything to say about how he sees fundamentals shaping up in coming months.
https://www.forbes.com/sites/jjkinahan/2019/04/11/challenges-stack-up-for-big-banks-ahead-of-jp-morgan-wells-fargo-citigroup/#3be661a418b9
two of these just did a complete loop and changed direction over house. Were flying NW to SE and turned around heading opposite. Not a usual pattern for here.
FWIW
see them fairly regularly in these parts-top gun territory iykwim. Usually fly W to E several times a week but that was a bit odd.
usually these parts they go 'unheard' due to frequency of the other aircraft in and out. Never saw that before and lived here for some time. Doesn't mean it has never habbened but I've never seen it and I notice this stuff
VP a talented nigga