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Focus On Bank Earnings

More bank earnings are in the spotlight today, with the major indexes hovering flat ahead of the open after strong gains in the last few sessions. Market participants appear to like the bank results thus far — not because they’re great, but because they could have been a lot worse.
This morning’s earnings reports from Bank of America (BAC) and Wells Fargo (WFC) didn’t quite have the positive surprises that Wednesday’s J.P. Morgan’s (JPM) report did. The Wells Fargo report is largely in-line with estimates, with the bank able to achieve a modest top-line gain from the year-earlier period and its loan portfolio steadily growing. Wells doesn’t have as much capital-markets exposure, which was hit hard in Q1 due to macro factors. But it does have more energy-sector exposure, for which it provisioned in the quarter.
The Bank of America report didn’t have as much improvement in its trading operations as we saw in the JPM read, but that was partly a function of heightened ‘whisper’ expectations following the J.P. Morgan read. All three banks showed strong gains in their loan portfolios even as their margins remained under pressure as a result of the difficult interest rate backdrop.
Including all these bank reports, we now have Q1 results from 23.7% of the Finance sector’s market capitalization in the S&P 500 index. Total earnings for these banks are down -9.5% from the same period last year on +1.1% higher revenues, with 40% beating EPS estimates and 20% beating revenue expectations.
The earnings and revenue growth pace and the percentage of positive surprises for these big banks is tracking below what we saw from the same group in other recent periods. But it is nevertheless a tad better than what the market was expecting. In other words, it could have been a lot worse.

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