Major banks put a bow on their 2022 fiscal year with a flurry of earnings reports Friday morning. Wells Fargo, Bank of America and Citigroup were 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 predicted a 56% drop in earnings to 60 cents per share. Adjusted earnings were expected to fall 28% to 85 cents per share as revenue slid 4.2% to $19.99 billion.
Results: Wells Fargo earnings halved, falling to 67 cents per share while revenue fell 5.7% to $19.66 billion.
The bank's net interest income advanced for the past seven quarters, helped by a recent lift from rising interest rates. Fourth-quarter interest income leapt 45% to $13.43 billion, beating expectations of $12.97 billion.
WFC stock climbed 3.3% Friday after declining 3.8% before the opening bell. 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.
Futures: Market Clears Resistance; 5 Stocks In Buy Areas
Bank of America Earnings
Analysts expected Bank of America's earnings to decline for the fourth straight quarter in Q4 while revenue rose for the sixth consecutive period.
Expectations: Watchers predicted earnings to drop 6% to 77 cents per share as revenue increased 9.8% to $24.17 billion.
Results: Bank of America earnings climbed 3.6% to 85 cents per share as revenue jumped 11.2% to $24.53 billion.
Net interest income rose for the seventh straight period, spiking 30% to $14.83 billion in Q4. The results just topped Wall Street expectations of $14.79 billion.
BAC stock rose more than 2% Friday after dipping 2.5% before the opening bell. Shares are up 14.6% the past three months but down 30% over the past year.
Citi Earnings
Citi's earnings were expected to dip for the fifth quarter in a row while revenue grew for the third straight period.
Expectations: Earnings were seen falling 21% to $1.14 per share while revenue rose 5.6% to $17.96 billion.
Results: Citi's earnings dropped to $1.16 per share as revenue grew 6% to $18 billion.
Net interest income grew for the fifth consecutive quarter, leaping 23% to $13.27 billion. Analysts predicted a 17% increase to $12.7 billion.
C stock rose 1.7% Friday after sliding 3% premarket following the 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.
