Bank of America – KBW’s top US banking stock

Fred Cannon, research director at KBW, a Stifel company, talks to IGTV’s Victoria Scholar about US banks’ earnings season and names his top sector pick. 

Here is a round-up of how the US banks have fared overall so far in first quarter earnings season.

Goldman Sachs

Goldman Sachs reported first quarter (Q1) revenue of $10.04 billion, beating forecasts for around $8.74 billion. Earnings per share (EPS) also topped expectations, hitting $6.95, compared with Wall Street estimates for $5.58. In a further sign of a bullish quarter, the investment bank raised its dividend from $0.75-$0.80. Low volatility hurt banks’ trading divisions in 2017 so the pick-up in the Volatility Index (VIX) helped Goldman’s FICC fixed income, commodities, and currencies (FICC) sales and trading revenue perform well, coming in at $2.07 billion, ahead of estimates. Equity trading also performed very well, with revenue hitting the highest level in three years. Group trading revenue hit $4.39 billion, flying past forecasts for $3.89 billion. Investment banking revenue reached $1.79 billion, versus estimates for $1.71 billion.

JPMorgan

JP Morgan reported first quarter EPS of $2.37, compared with expectations for around $2.29 and above last year’s result of $1.65. Net income rose by 35% to a record level of $8.7 billion. The analyst team at Keefe, Bruyette & Woods (KBW) remark in a research report that it would have missed expectations on earnings, if it weren’t for a one-off accounting gain of just over half a billion dollars, equivalent to $0.11 per share. Revenue came in at $28.52 billion ahead of Thompson Reuters I/B/E/S Estimates for $27.68 billion. Net interest income rose by 10% to $13.3 billion. KBW notes that equity trading revenue came in ahead of expectations, while FICC trading revenue disappointed.

Citigroup

Citigroup's EPS in the first three months of the year topped Wall Street’s estimates, coming in at $1.68 versus forecasts for $1.61. Equities revenue increased by 38% to $1.1 billion. However, fixed income revenue declined by 7% year-on-year. Net interest income hit $11.17 billion, falling shy of expectations for around $11.26 billion. KBW has a market perform rating on this stock.

Wells Fargo

The embattled lender Wells Fargo said it had to pay a $1 billion fine over the mis-selling of insurance and mortgages, which overshadowed its quarterly results. Fred Cannon, research director at KBW, a Stifel company, said there wasn’t much to get excited about with this stock, even with its investor forum coming up on 19 April. Net income in the first quarter also fell short of expectations, hitting $5.6 billion, compared with expectations for $5.9 billion. The banks’ shares sold off following the announcement of its fine and the quarterly numbers. KBW has a market perform rating on this stock.

Bank of America

Bank of America reported Q1 earnings per share of $0.62, compared with expectations for around $0.59. Net income hit $6.91 billion, beating expectations for $6.14 billion. On the top line, revenue hit $23.12 billion just ahead of analysts’ forecasts for $23 billion. This is Cannon’s favourite stock in the sector, despite the fact that it wasn’t a stellar growth quarter. He said it is well positioned to become the favourite provider commercial banking in the US given Wells Fargo’s issues. Cannon argues that it will continue to benefit from higher rates and expense cutting.

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