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Market Outlook

How will the US banks’ share prices fare during earning season?

US banks' share price: the JPMorgan logo

It’s US earnings season, and over the coming week there’ll be results announcements for a wealth of major businesses, as they update the market on their financial states of play.

Over the coming week, US banks are in the spotlight, with the global leaders all set to reveal their numbers. There’s also an update from Coinbase, a company looking for a share price boost.

What will the announcements mean for the US banks’ share prices?

JPMorgan Q2 results 

Tuesday: At its last set of numbers JPMorgan blew away consensus expectations on both profits and revenues for the second quarter in succession. Revenue for the Q1 period came in at $33.12bn, topping the $30.4bn estimate. Investment banking revenue came in above expectations at $2.85bn, as did equities and trading revenue which rose to $3.29bn, while the steeper yield curve helped fixed income rise to $5.76bn. The bank also released another $5.2bn in loan loss reserves having released $2.9bn in Q4 as non-performing loans proved to be much less onerous. 

With the US economy increasingly looking more resilient, and these provisions still at an elevated $25.5bn, there is the chance that we could see further declines in provisions given the Federal Reserve’s recent decision to allow the resumption of buybacks and dividends from 30 June. This is already raising expectations of seeing more cash released from reserves in the form of extra dividends and cash. 

The biggest problem facing the JPMorgan share price appears to be high expectations, something that CEO Jamie Dimon appeared keen to stress last month when he warned that the banks Q2 performance was unlikely to match that of Q1. Trading revenue could well be lower than the consensus estimates of $6.5bn, as lower yields and volatility impact turnover. Dimon also played down expectations over loan demand and income after a bumper Q1. The trend over loan demand was also notable in its Q1 numbers which the bank said was likely to remain challenged, while deposits rose 24% year on year to $2.3trn. While having so much cash on its balance sheet is a nice problem to have, it also speaks to a difficult lending environment. It would appear that higher long-term rates are impacting on housing loan demand, a trend currently being reflected in the latest housing numbers, while small business lending was down 50% compared to the same quarter a year ago. 

While the shares appear to be rising on the basis of expectations of higher pay outs in the coming quarters, it may well also be worth noting to see whether the underlying Q2 numbers point to challenges for the US economy due to concerns about higher interest rates. Dimon also warned last month the bank was looking to build up its cash levels over concerns about higher inflation. This could also limit the scope of returns to shareholders in the medium term, however the bank still seems confident enough to promise to boost its quarterly dividend to $1 a share. Profits are expected to come in at $3 a share

Goldman Sachs Q2 results

Tuesday: Goldman Sachs followed a crushing performance in Q4 with a similarly crushing performance in Q1, with profits coming in at $18.60c a share, well above expectations of $10, while revenues also surged, coming in at $17.7bn, $5bn more than expected. The bank exhibited outperformance in all areas, with equities revenue up 68% to $3.69bn, and FICC revenue up by 31% to $3.89bn. 

There was some concern about possible losses after the blow up of Archegos Capital, however these proved to be misplaced. The bank appears to be leaning its future focus towards a greater focus on risk management, however like JPMorgan the lack of volatility on Q2 could well see expectations around the Goldman Sachs share price pared back. Like JPMorgan they have also promised to boost the dividend to $2 a share, from $1.25. Profits are expected to come in at $9.35 a share.  

Citigroup Q2 results

Wednesday: Citigroup had a decent start to its new financial year, posting profits of $3.62 a share in Q1, though revenues were softer at $19.3bn. The main headline however was that Citigroup announced it was retreating from retail banking in 13 markets across Asia and Europe, including in China, India, Russia and South Korea. 

Income also got a boost after Citi rotated $3.9bn out of loan loss reserves back into the business, as the bank upgraded its outlook for the US economy. Like JPMorgan last month, Citigroup also issued a warning over its trading revenues for the latest quarter, which has had an impact on the Citigroup share price. The lower levels of volatility relative to last year was always going to be a challenge, for US banks, however Citigroup also pointed to slower loan growth due to consumers sitting on the proceeds of their stimulus payments. This was an issue that JPMorgan also pointed to at its numbers in Q1. Profits are expected to come in at $2 a share, while management have promised to pay a dividend of at least $0.51 a share, which is a little disappointing given that it appears to be the only US bank not to increase its payout.    

Morgan Stanley Q2 results


Thursday: At the end of last year Morgan Stanley saw full-year net revenues hit a record of $48.2bn, while net income rose to $11bn, from $9bn the year before. A strong Q4 helped drive these record numbers with revenues coming in at $13.64bn, well over $2bn above estimates. The outperformance was once again driven by investment banking as well as the equities trading division, which saw revenues surge by $350m above estimates. The new fiscal year and Q1 saw this trend continue with profits coming in at $2.22 a share, on net revenues of $15.7bn, and the Morgan Stanley share price has been rising steadily since February.

The equities and FICC divisions both posted better than expected top line numbers, with the acquisition of E*TRADE more than likely helping to boost the numbers here, when compared to a year ago. The bank was also exposed to the Archegos Capital collapse which cost it $911m in provisions, a figure that could increase further. With the Fed relaxing its dividend and buyback restrictions we could see profits boosted by releases from credit reserves. Q2 profits are expected to come on at $1.64 a share, with the bank promising to double the quarterly dividend to $0.70 a share, and buying back $12bn of its shares.

Coinbase Q2 results

Thursday: In the three months since listing on the Nasdaq, to say the Coinbase share price performance has been poor would be an understatement, with the shares languishing just above $200. This comes after a promising start; on the first day of trading, the Coinbase share price shot up above the $250 reference price peaking at $381, before sliding back. 
In their prospectus Coinbase said it expected to make between $730m to $800m in Q1. The company also said it had 56m verified users and that it expected to turn over $1.8bn in the first three months of its fiscal year. When the company confirmed these numbers in its May update, they were pretty much in line, but the market reaction was disappointing. Q1 net income came in at $771.5m, while revenues rose to $1.8bn which was still more than the company turned over in the whole of 2020. It was a little lower than market expectations and probably helps explain why the shares have struggled a little.

With all the volatility being seen across the crypto space maybe expectations were a little on the high side. The number of verified users was confirmed at over 56m. In terms of the outlook, management were somewhat cautious, predicting flat transaction volume for Q2, though they did revise up their guidance on the number of monthly transacting users to 7m from 5.5m. Talk of crackdowns and increased regulation could weigh on the numbers in Q2, along with recent declines in bitcoin and cryptos in general, this week’s Q2 numbers could be at risk of missing expectations. Profits are expected to come in at $2.41 a share


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