Big banks are gearing up for the third-quarter earnings season this week. Investors are hopeful that bank profits will rise on the White House’s intention to slash corporate taxes and ease banking regulations. Higher wage growth, in the meantime, is expected to counter setbacks stemming from soft loan growth. Yet, multiple banks believe that trading revenues are trending lower in the current quarter.
Nevertheless, let us focus on banks that are likely to make the most of the third-quarter earnings season. Such banks are poised to report upbeat earnings results, which will eventually lead to an uptick in share price.
America’s Leading Banks Mint Money
Five of America’s biggest banks are expected to register $21 billion in profits in Q3. Such banks include JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc (NYSE:C), Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC) and PNC Financial Services Group Inc (NYSE:PNC).
Undoubtedly, JP Morgan is the most valuable U.S. bank, with assets more than $2.1 trillion. Jamie Dimon’s company is likely to post $6.4 billion in profits in Q3, which will in time make it the most profitable. The shares of the bank have already seen steady gains since June 2016. Such gains came in despite the latest dip in September that hit the 200-day simple moving average.
Citigroup’s shares also continue to hit milestones, thanks to a more than 50% surge since Trump’s election. The banking behemoth is now worth more than $200 billion. Bank of America, in the meantime, celebrated a landmark of its own last week, when its share price touched the $26 mark for the first time since September 2008, the month Lehman Brothers had shut down.
Wells Fargo also continues to make big money, even if its CEO Tim Sloan faces tough questions regarding the recent auto insurance and mortgage fee controversies. The bank is expected to register $5 billion in profits in the said quarter. And don’t forget, PNC Financial Services, the sixth largest bank in terms of asset size, is positioned to see the strongest earnings growth from last quarter.
But, it’s just not the large banks that are expected to make money. The overall banking industry is doing really well. Bank stocks, collectively, are up more than 8% over the past month, roughly double the S&P 500’s performance in that time period.
And how can we forget that banks have already earned a record $48.3 billion in Q2, which was well above the pre-crisis high of $38 billion in 2006, according to the FDIC.
Banks Set to Gain Under Trump’s Tax Plan & Deregulation
It’s no wonder that bank’s profitability will be enhanced by proposed tax cuts and deregulation. The corporate tax rate is expected to be slashed from 35% to 20%. Banks face high tax burden, which makes them big gainers when tax rates go down. As per KBW estimates, JPMorgan, Wells Fargo and Bank of America will enjoy a 20% or more hike in profits if the corporate tax rate is lowered to 20%.
Lowering of domestic tax rate will also result in repatriation of hundreds of billions of dollars in cash. This will, ultimately, boost the economy and may cause interest rates to rise. Higher interest rates boost bank profits by increasing the spread between what banks earn by funding longer-term assets, such as loans, with shorter-term liabilities.
The Republican, bill better known as the Financial Choice Act, in the meanwhile, would free up banks by giving more power to banking authorities and spurring lending activities.
Loan Growth, Trading Activities Soft
We shouldn’t forget that loan growth for commercial banks has declined precipitously since last November, to 2.1% from 8.1%, as per the Federal Reserve data.Higher wage growth, however, is expected to drive demand for retail and small business loan. Wages have increased 0.5% to average of $26.55 an hour in September, per the Labor Department data. In fact, in the last 12 months, hourly pay increased 2.9%, up from 2.7% in the prior month and also in line with a post-recession high.
But, the major concern for banks is lack of activity on trading floors. Jamie Dimon expects trading revenue decline of 20% in the three months ending September 30, while Citigroup’s Chief Financial Officer John Gerspach also expects trading revenues to fall 15% from the year-ago period. Bank of America did confirm that it’s seeing a similar trend. The only hope in this case is that investment pros expect markets to be choppier in the later half of this year, which could well spur trading activities.
5 Bank Stocks to Buy Ahead of Q3
Barring a drop in trading revenues, banks are likely to see solid growth in Q3. This calls for investing in five banks, which are expected to report a significant uptick in Q3 earnings. These stocks have a positive Earnings ESP. This is our proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter. These stocks, in the meanwhile, also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
PNC Financial Services Group Inc has businesses engaged in retail banking, including residential mortgage, corporate and institutional banking and asset management. The company is expected to report earnings results for the quarter ending September on Oct 13. PNC Financial Services has an Earnings ESP of +0.07%. The company’s expected earnings growth rate for the current year is 14.8%.
Wintrust Financial Corp (NASDAQ:WTFC) is a financial holding company. The company conducts its businesses through three segments: community banking, specialty finance and wealth management. The company is expected to report earnings results for the quarter ending September on Oct 18. Wintrust Financial has an Earnings ESP of +1.33%. The company’s expected earnings growth rate for the current year is 17.7%.
UMB Financial Corp (NASDAQ:UMBF) is a diversified financial holding company. The company supplies banking services, institutional investment management, asset servicing and payment solutions to its customers in the United States and around the globe. The company is expected to report earnings results for the quarter ending September on Oct 24. UMB Financial has an Earnings ESP of +1.59%. The company’s expected earnings growth rate for the current year is 9.9%.
Synovus Financial Corp. (NYSE:SNV) is a financial services company and a bank holding company. The company is expected to report earnings results for the quarter ending September on Oct 17. Synovus Financial has an Earnings ESP of +0.94%. The company’s expected earnings growth rate for the current year is 24.9%.
BancFirst Corporation (NASDAQ:BANF) is a financial holding company. The company conducts its operating activities through its principal subsidiary, BancFirst (the Bank), a state-chartered bank. The company is expected to report earnings results for the quarter ending September on Oct 19. BancFirst has an Earnings ESP of +4.72%. The company’s expected earnings growth rate for the current year is 25.5%.
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