Sumary of 5 Things to Expect From Bank Earnings in the First Quarter:
- Next week, several big banks will kick off earnings season by releasing reports and they should give investors a first peek under the hood of 2021, which could be a very interesting year for the sector given all of the different factors at play..
- Analysts, on average, expect Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC) to just slightly beat out their fourth-quarter earnings, while Citigroup (NYSE:C) is expected to beat its fourth-quarter earnings handily..
- Analysts expect JPMorgan Chase (NYSE:JPM) to come up well short of its monster fourth-quarter earnings performance, but the bank released nearly $3 billion in reserves last quarter and had another banner quarter in its corporate and investment banking division..
- Nearly all banks last year reserved significantly in order to brace for heavy loan losses brought on by the pandemic..
- With the credit picture much clearer and most economists projecting higher GDP, I expect a number of banks to release reserves back onto the income statement, which will juice earnings..
- Large corporations resorted to the capital markets, while loan revolver utilization among middle-market businesses dropped as well..
- While the news may be disappointing, banks should still make more net interest income on many of their loans and securities as a result of longer-term rates increasing significantly in 2021..
- When the Federal Reserve abruptly dropped its federal funds rate to practically zero at the beginning of the pandemic, it triggered a wave of refinancing activity that continued to hold up through 2020..
- The yield on the 10-year Treasury note, which mortgage rates move in line with, has risen sharply in 2021 on inflation fears and the potential of future rate hikes…