The major banks put the bow on their 2022 fiscal year on Friday morning with a series of earnings reports. Wells Fargo (WFC), Bank of America (BAC) and Citigroup (C) are among those reporting fourth-quarter results as recession worries weigh on the market.
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However, higher interest rates should continue to help banks’ performance. Barclays analyst Jason Goldberg believes bank stocks are likely to show resilience, despite recession worries as loan growth slows and loan losses increase. Oppenheimer analyst Chris Kotowski believes banks will remain “more stable than most think” in the fourth quarter and into 2023, although his models predict loan losses will nearly double as credit trends normalize.
Bank earnings: Wells Fargo
In late December, the Consumer Financial Protection Bureau fined Wells Fargo $3.7 billion for its involvement in numerous banking violations that have harmed customers since 2011. The allegations include improperly recording home and auto loan payments, illegally repossessing borrowers’ cars and homes, and illegal charging of overdraft fees.
Citi analyst Keith Horowitz called the settlement “an expensive step forward” in a Dec. 21 research note. He expects Wells Fargo to report an operating loss of $3.5 billion in the fourth quarter, but says the bank has “sufficient capital to withstand this blow.”
On Tuesday, Wells Fargo announced plans to dramatically shrink its mortgage business. It will now only offer home loans to existing banks and asset management clients, as well as minority borrowers. The bank is also closing its correspondent business, which sells mortgages through third parties, and is “significantly” reducing its mortgage servicing portfolio through asset sales. Wells Fargo is the largest U.S. mortgage loan servicer with nearly $1 trillion in loans, or 7.3% of the market, as of the third quarter, CNBC reported.
Wells Fargo’s earnings have fallen in the past three quarters, while revenue rose in the third quarter after two straight periods of decline.
Expectations: Wall Street is predicting a 56% decline in earnings to 60 cents per share. Adjusted earnings are expected to fall 28% to 85 cents per share as revenue falls 4.2% to $19.99 billion.
The bank’s net interest income has grown over the past seven quarters, helped by recent interest rate hikes. And analysts forecast fourth-quarter interest income to jump 39% to $12.93 billion.
Shares of WFC jumped 1.4% on Wednesday. Shares are up 5% over the past three months despite falling nearly 10% since the start of December. However, the bank’s shares fell 24% compared to last year.
Bank of America earnings
Analysts expect Bank of America’s earnings to fall for the fourth straight quarter in the fourth quarter, while revenue is forecast to rise for the sixth consecutive period.
Expectations: Analysts forecast earnings to fall 6% to 77 cents a share as revenue rose 9.8% to $24.17 billion.
Net interest income is forecast to jump 29.7%, which would mark the seventh consecutive quarter of gains.
Shares of BAC rose more than 1% during trading on Wednesday. The stock is up 14.6% in the past three months, but has fallen 30% over the past year.
Citi earnings
Citi’s earnings are expected to decline for the fifth consecutive quarter, while revenues are expected to grow for the third consecutive period.
Expectations: Earnings are forecast to fall 18% to $1.19 per share, while revenue is expected to rise 5.6% to $17.96 billion.
Analysts forecast net interest income to rise for the fifth consecutive quarter, increasing 17% to $12.68 billion in the fourth quarter.
C shares gained 1.5% on Wednesday ahead of the week-end earnings report. Shares are up 19% over the past three months, but down 28% over the past year.
You can follow Harrison Miller for more news and stock updates on Twitter @IBD_Harrison.
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