The first full week of third-quarter earnings season (week of Oct. 12) was focused primarily on the large banks. Results turned out to be mixed. That was despite the fact that earnings growth rates were reduced by 13.5% for the banking sub-sector of the financials group in the two week heading into results.
In reaction to the announcements, investors rewarded Bank of America and Citigroup by sending their stocks higher. Both of these banks reported large upside surprises on the back of strong expense controls. Their results were particularly encouraging as the storyline going into the third-quarter for the money center banks was all about how volatile markets drove weak trading and equity underwriting revenues.
Goldman Sachs and JPMorgan were hit particularly hard -- their results reflected the foretold storyline. Strength in advisory fees, led by a robust M&A market, and equity trading didn’t offset the large declines in those other business lines. Both banks missed the consensus EPS estimate by a substantial amount.
As far as the regional banks go, we are seeing good loan growth with strength in commercial loans as well as retail loans. Further, stabilized net interest margins have been a positive in the quarter considering the low interest rate environment the banks continue to operate in.
Many CEOs discussed the challenge the global environment had on the quarter, while, at the same time highlighting that the consumer side of their businesses remained strong. Financial sector earnings estimates currently stand at 3.1% which is half the rate expected 3 weeks ago.
Only 13% of the financials sector has reported at this point. We will be keeping a close eye on the sector as the earnings season unfolds, give it is a key indicator of the economic environment.