Goldman Sachs (GS) fell short of Q1 forecasts Tuesday, blaming weak trading revenue on political uncertainty and low volatility, while Bank of America (BAC) reported better-than-expected earnings, led by strong trading and net interest income.
Estimates: Earnings per share of $5.31, nearly double that of a year ago, when results from some banks were driven lower by the commodities crash and a slowing economy in China. Revenue is seen jumping 33% to $8.445 billion.
Results: EPS of $5.15 on revenue of $8.03 billion. Revenues from bond, currency and commodities trading was little changed at $1.69 billion. Equities trading fell 6% to $1.67 billion. Investment bank revenue grew 16% to $1.7 billion. Investment management revenue rose 12% to $1.5 billion.
“The operating environment was mixed, with client activity challenged in certain market-making businesses and a more attractive backdrop for underwriting in our investment banking franchise,” said CEO Lloyd Blankfein in a statement. “As the economy improves, we are well-positioned to not only meet our clients’ diverse needs, but also to generate operating leverage for our shareholders.”
Dividend: Quarterly payout was raised 15% to 75 cents a share.
Stock: Goldman fell 4.7% to 215.53 in afternoon trade on the stock market today, tumbling to its worst level since Nov. 30. Goldman Sachs was a major drag on the Dow Jones industrial average, and sent financial stocks lower.
Fellow investment banker Morgan Stanley (MS), which reports Wednesday, dropped 1.3%.
Bank of America
Estimates: A 67% jump in EPS to 35 cents, as revenue rises 10% to $21.611 billion.
Results: EPS of 41 cents on revenue of $22.2 billion. Fixed-income trading swelled to $2.9 billion, above views. Net interest income grew 5% to $11.1 billion, in line with some views.
Stock: Shares reversed from early gains to trade down 1.1% at 22.56
Bank of America, analysts have said, is more sensitive to changes in U.S. interest rates than its peers, given its large amount of business it does here. The bank’s fourth-quarter earnings were helped along by cost discipline and fewer losses on bad loans, a recent Edward Jones research note said.
Investors have become more anxious that bank stocks’ postelection run might not reflect the reality on the ground. Interest rates are rising, but doubts have grown over how fast the Trump administration might be able to carry out its more bank-friendly economic agenda.
Shares of big banks have fallen since March as those expectations cool. JJ Kinahan, chief market strategist at TD Ameritrade, said last week that banks could stay within the range they’re in now until details on tax policy become more concrete.
JPMorgan CEO Jamie Dimon urged patience.
“You all should expect, as a given, that when you have a new president, and they get going, that the nine months after the 100 days is gonna be a sausage-making period,” Dimon told analysts on the bank’s first-quarter earnings call. “There will be ups and downs, wins and losses, stuff like that.”
JPMorgan and Citigroup beat estimates on the top and bottom lines, while Wells Fargo’s EPS was above views. Trading results were strong for JPMorgan and Citigroup, helped in part by the outlook on interest rates.
But JPMorgan’s consumer and industrial loan growth was roughly flat quarter-to-quarter. Management said some of the slowdown might be due to past big acquisitions and because companies have other options, such as bonds, for financing.
Citigroup also tempered its expectations for loan growth. And Wells Fargo saw auto-loan originations drop due to stricter underwriting standards, while home-loan originations also fell.