Major banks put a bow on their 2022 fiscal years with a flurry of earnings reports Friday morning. Wells Fargo (WFC), Bank of America (BAC) and Citigroup (C) are among those announcing Q4 results as recession concerns weigh on the market.
Still, higher interest rates should continue to help bank performance. Barclays analyst Jason Goldberg thinks bank stocks are likely to show resilience, despite the recession concerns as loan growth slows and loan losses increase. And Oppenheimer analyst Chris Kotowski believes banks will remain “steadier than most think” in the fourth quarter and 2023, even as 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 engaging in numerous banking violations that harmed customers dating back to 2011. The claims include improperly recording customer home and auto loan payments, wrongfully repossessing borrowers’ cars and homes, and wrongfully charging overdraft fees.
Citi analyst Keith Horowitz called the settlement a “costly step forward” in a Dec. 21 research note. He expects Wells Fargo to report a $3.5 billion operating loss in Q4 but says the bank has “sufficient capital to withstand this hit.”
On Tuesday, Wells Fargo announced plans to dramatically shrink its mortgage business. It will now only offer home loans to existing bank and wealth management customers, as well as borrowers in minority communities. The bank is also closing its correspondence business, which sells mortgages through third parties, and “significantly” reducing its mortgage servicing portfolio through asset sales. Wells Fargo is the largest mortgage servicer in the U.S. with nearly $1 trillion in loans, or 7.3% of the market, as of Q3, CNBC reported.
Wells Fargo’s earnings fell the past three quarters while revenue ticked up in Q3 after two successive periods of declines.
Expectations: Wall Street forecasts a 56% drop in earnings to 60 cents per share. Adjusted earnings are expected to fall 28% to 85 cents per share as revenue slides 4.2% to $19.99 billion.
The bank’s net interest income advanced for the past seven quarters, helped by a recent lift from rising interest rates. And analysts predict fourth-quarter interest income will leap 39% to $12.93 billion.
WFC stock jumped 1.4% Wednesday. Shares are up 5% the past three months despite falling nearly 10% since the start of December. Still, the bank’s stock is down 24% over the last year.
Bank of America Earnings
Analysts expect Bank of America’s earnings will decline for the fourth straight quarter in Q4 while revenue is seen rising for the sixth consecutive period.
Expectations: Watchers predict earnings will drop 6% to 77 cents per share as revenue rises 9.8% to $24.17 billion.
Net interest income is predicted to jump 29.7%, which would mark the seventh straight quarter of gains.
BAC stock rose more than 1% during trading Wednesday. Shares are up 14.6% the past three months but down 30% over the past year.
Citi’s earnings are expected to dip for the fifth quarter in a row while revenue grows for the third straight period.
Expectations: Earnings are seen falling 18% to $1.19 per share while revenue rises 5.6% to $17.96 billion.
Analysts predict net interest income will grow for the fifth consecutive quarter, increasing 17% to $12.68 billion in Q4.
C stock gained 1.5% on Wednesday before its end-of-week earnings report. Shares are up 19% over the last 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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