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Bank ETFs in Q4 Earnings Spotlight

Janesmith

2024-01-30

The last quarter’s bank earnings are often viewed as a financial health report card, and Q4 of 2023 was no exception. This period captured the critical eyes of investors whose faith in the U.S. banking sector faltered following March’s regional banking crisis. Although the dust of the crisis has largely settled, large bank earnings from this period still held significant sway over investor sentiment.

The big banks presented a divided front in the previous quarter, with mixed results that offered both hope and caution. This post will dissect the earnings season, outlining the stories behind the numbers, and address the potential impact these results could have on banking Exchange Traded Funds (ETFs).

Big Bank Earnings in Focus.

JPMorgan’s Surprising Q4 Performance

Higher interest rates provided a tailwind for some institutions, while deal-making and a slightly brighter incoming stream from investment banking (IB) were also positive factors. JPMorgan Chase’s (JPM) adjusted quarterly earnings surpassed expectations, thanks not only to a bump from rates but also to a strong loan balance.

The fourth quarter of 2023 saw JPMorgan’s adjusted earnings rise to $3.97 per share, fueled by higher interest rates, the deal with First Republic Bank, a modest improvement in investment banking (IB) business, and a solid loan balance. This performance exceeded the Zacks Consensus Estimate of $3.73 per share, impressing investors. However, although net revenues reported were $38.57 billion, an increase of 12% year over year, they fell short of the Zacks Consensus Estimate of $39.09 billion. Noteworthy in the report was the Net Interest Income (NII), which experienced a significant leap of 19% year over year, reaching $24.05 billion.

Bank of America’s Q4 Earnings Report

Bank of America’s (BAC) Q4 2023 adjusted earnings presented a mixed bag. The bank outpaced the Zacks Consensus Estimate by a penny, with earnings of 70 cents per share, although this was a decrease compared to 85 cents earned in the same quarter the previous year. The quarterly net revenues stood at $21.96 billion, falling considerably short of the Zacks Consensus Estimate of $24.07 billion and representing a 10% decline from the prior-year quarter. This raises certain concerns among investors and could potentially impact the performance of banking ETFs.

Wells Fargo’s Q4 Earnings Overperform

As for Wells Fargo & Company (WFC), their fourth-quarter 2023 adjusted earnings per share of $1.29 outperformed the Zacks Consensus Estimate of $1.18. This figure represents a year-over-year growth of 15%. It’s important to note that the adjusted results have been calculated excluding the impacts of expenses from an FDIC special assessment, severance expenses for planned actions, and discrete tax benefits related to the resolution of prior period’s tax matters. On the revenue front, Wells Fargo reported total quarterly revenues of $20.47 billion, surpassing the Zacks Consensus Estimate of $20.31 billion. This was a 2% increase in the top line from the same quarter in the prior year. This performance shows a promising uptick for Wells Fargo, likely having positive implications for banking ETFs.

Citigroup’s Q4 Earnings Exceed Expectations but Show Decrease

Citigroup Inc. (C) demonstrated a commendable performance in the 4th quarter of 2023, beating the Zacks Consensus Estimate of 73 cents with earnings per share of 84 cents (excluding the impact of notable items). However, when notable items were accounted for, the bank recorded a loss per share of $1.16. This is a disappointing comparison to the earnings of $1.16 per share registered the year prior. Despite surpassing our estimate of $1.15, Citigroup’s revenues, net of interest expenses, experienced a decrease of 3.1% year over year, totaling $17.44 billion for the quarter. This figure fell short of the Zacks Consensus Estimate of $18.66 billion.

Goldman Sachs Q4 Earnings Show Strong Performance

The Goldman Sachs Group, Inc. (GS) also exceeded expectations in the fourth quarter of 2023. The bank’s earnings per share reached $5.48, outpacing the Zacks Consensus Estimate of $3.47. This figure represents a significant 65% increase from the same quarter in the previous year. The net revenues for the quarter were reported at $11.32 billion, a 7% annual increase. This revenue figure also surpassed the Zacks Consensus Estimate of $10.71 billion, suggesting a strong quarter performance from Goldman Sachs. This positive result is likely to have a favorable effect on banking ETFs.

Morgan Stanley’s Q4 Earnings Report

Morgan Stanley (MS) showcased an impressive performance in the fourth quarter of 2023, where the bank’s adjusted earnings comfortably surpassed the Zacks Consensus Estimate. The earnings per share reached $1.13, beating the estimate of $1.05. However, when compared to the earnings of $1.26 per share in the prior-year quarter, the bottom line showed a slight dip. In terms of revenue, Morgan Stanley reported quarterly net revenues of $12.90 billion, marking a 1% increase from the prior-year quarter. This figure exceeded the Zacks Consensus Estimate of $12.70 billion, indicating a stronger-than-expected performance. This outcome suggests potential positive implications for banking ETFs.

ETF Impact

The lens then shifts to ETFs, specifically those brimming with exposures to the aforementioned financial giants. These include:

  • iShares U.S. Financial Services ETF (IYG)
  • Invesco KBW Bank (KBWB)
  • Financial Select Sector SPDR (XLF)
  • U.S. Broker-Dealers Index Fund (IAI)
  • Vanguard Financials ETF (VFH)

The financial sector ETFs including iShares U.S. Financial Services ETF (IYG), Invesco KBW Bank (KBWB), Financial Select Sector SPDR (XLF), U.S. Broker-Dealers Index Fund (IAI), and Vanguard Financials ETF (VFH) exhibited a subdued performance last week, which was a critical period of earnings reports. This lackluster performance can be attributed primarily to the flattening of the yield curve. However, the financial sector presents a robust valuation, and there are possibilities of a steepening yield curve in 2024. Therefore, investors should keep these ETFs on their watchlist as they could potentially offer fruitful returns in the near future.

Despite the waves made during earnings announcements, these ETFs maintained relative calm, attributed partly to a leveling yield curve. Yet, the valuation of the sector combined with prospects of a steeper yield curve in 2024 indicates that keeping an eye on these funds could be prudent for interested investors.

Keywords: Bank ETFs, Q4 Earnings, Investment Banking