Factbox: Big U.S. banks' fourth-quarter results muddied by new tax law

(Reuters) – Morgan Stanley reported quarterly results on Thursday, rounding off an earnings season for big U.S. banks marked by across-the-board hit to profits from the U.S. tax overhaul.

A snapshot of the six big U.S. banks’ results:

JPMorgan Chase & Co

Adj. EPS (beat) – $1.76 vs est $1.69

Revenue (beat) – $25.45 bln vs est $25.15 bln

Helped by: Interest income

Hurt by: Slowdown in trading revenue

Tax impact: $2.4 bln charge

Executive comment: “The enactment of tax reform in the fourth quarter is a significant positive outcome for the country. U.S. companies will be more competitive globally, which will ultimately benefit all Americans” – CEO Jamie Dimon

Analyst’s take:

Credit Suisse – (rating: “outperform,” PT: $120) JPM’s Q4 print is noisy, but generally consistent with expectations; adds JPM is well positioned in 2018

Nomura – (rating: “neutral,” PT: $115) Despite JPM’s messy quarter/expense miss, FY18 tax guidance is slightly better than anticipated. While JPM shares have lagged the KBW Bank Index to start the year, shares could outperform, given favorable tax guidance RBC – (rating: “outperform,” PT: $110) JPM’s Q4 core performance was generally steady with continued improvement in net interest margin and lower-than-expected credit costs

Compass Point – (rating: “sell,” PT: $100) Metrics in JPM’s Q4 results were mixed, but largely disappointing

Wells Fargo & Co

EPS – $1.16

Rev – $22.1 bln

Tax impact – $3.35 bln gain

Helped by – One-time gain related to the new tax law

Hurt by – Higher-than-expected non-interest expenses for 2017; $58.48 bln vs est $54.62 bln

Executive comment: “The only piece of that pro-growth agenda people can really sink their teeth into is that tax reform that just occurred … I see a lot to like in it” CEO Tim Sloan

Analyst’s take:

RBC – (rating: “outperform,” PT: $60) Although there were many moving parts in WFC’s Q4, overall revenue performance was underwhelming and suggests co has yet to fully move past its sales practice issues

Barclays – (rating: “overweight,” PT: $75) WFC’s 2018 expense guidance was “okay” ($53.5 bln-$54.5 bln vs. consensus at $53.7 bln)

BMO – (rating: “market perform” PT: $62) Despite WFC’s 6 pct cost-driven Q4 miss, its forward estimates are essentially unchanged; broker remains bullish on banks

Evercore – (rating: “outperform,” PT: $65) WFC’s expectations for 2018 expenses in a range of $53.5 bln-$54.5 bln is positively below its estimate of $55 bln

Citigroup Inc

Adj. EPS (beat) – $1.28 vs est $1.19

Rev (beat) – $17.26 bln vs est $ 17.22 bln

Tax impact – $22 bln charge

Helped by – Growth in consumer banking, especially in Asia and Mexico

Hurt by – Charges related to the new U.S. tax law

Executive comment: “Tax reform is a clear net positive for Citi and its shareholders,” – CEO Michael Corbat

Analysts’ take:

Credit Suisse – (rating: “outperform”, PT: $86) Citi’s Q4 results “solid” relative to expectations, where fundamentals were just fine with revenue modestly above forecast in the Global Consumer Banking segment

Instinet – (rating: “buy”, PT: $86) Despite mixed results overall, sees modest share outperformance given low expectations for Q4 2017 and better-than-expected Consumer credit trends. While tax guidance did not surprise and capital hit was slightly greater than anticipated, results prove “good enough” this quarter

RBC – (ratings: “outperform,” PT: $79) Although significant non-cash charges related to tax reform obfuscated Q4 performance, underlying trends were generally “strong” and core results exceeded estimates

Bernstein – (rating: “outperform,” PT: $84) Citi reported a messy Q4 results but its core trends came in a touch better. Modest upward inflection in Global Consumer growth (Mexico better) was a positive for Q4

Bank of America Corp

Adj. EPS (beat) – 47 cents vs est. 44 cents

Rev (miss) – $20.4 bln vs est. $21.53 bln

Tax impact – $2.9 bln charge

Helped by – 11 percent rise in net interest income to $11.46 billion

Hurt by – Tax-related charges, lower trading revenue compared with a year earlier, $292 million charge related to troubled South African furniture retailer Steinhoff International

Executive comment: Some tax savings would be funneled into technology investments but the bulk of the windfall would be returned to investors – CEO Brian Moynihan

Analysts’ take:

Moody’s analyst David Fanger – We consider BAC’s results to be credit positive and consistent

Goldman Sachs Group Inc

Adj. EPS (beat)- $5.68 vs est. $4.91

Rev (beat)- $7.83 bln vs est. $7.61 bln

Tax impact – $4.4 bln charge

Helped by: Investment banking revenue due to strong debt and equity underwriting

Hurt by: One-time charge related to the U.S. tax overhaul, a slump in trading revenue

Executive comment: “We are working intensely to achieve our $5 billion in strategic growth initiatives with an emphasis on growing earnings and returns” – CFO Marty Chavez

Analyst’s take:

Credit Suisse – (rating: “neutral,” PT: $267) GS’ earnings were a mix of positives and negatives with investment banking and investing & lending both stronger and more than offsetting weakness in trading

Instinet – (rating: “neutral,” PT: $238) Investment bank results surprised “positively”. However disappointment on trading/continued share loss, coupled with lower-quality sources of earnings strength will result in share underperformance

JPMorgan – (rating: “overweight,” PT: $278) GS’ overall trading results disappointing, mainly in fixed income, currency and commodities client execution, even in light of known low volatility levels. Expects GS to operate with headwinds in Q1 (like Q4) compared to peers due to its business and client mix

JMP – (rating: “market perform”) GS’ core results were modestly better than expectation but not close to the magnitude of the headline beat

Morgan Stanley

Adj. EPS (beat)- 84 cents vs est. 77 cents

Rev (beat)- $9.5 bln vs est. $9.2 bln

Tax impact – $1.2 billion charge

Helped by: Underwriting revenue; Wealth management

Hurt by: Tax provision; Trading revenue

Executive comment: Morgan Stanley has met or exceeded all the goals laid out in early 2016 – CEO James Gorman

Morgan Stanley’s bond trading revenue plunged 45 percent in the quarter, the business still delivered more than $1 billion in average quarterly revenue for the full year. Gorman has said the business needs to generate at least that much to be sustainable.

Analyst’s take:

Argus Research – Investments in wealth management business and favorable equity market are helping MS lower earnings volatility, which should aid stock’s valuation over time

Credit Suisse – (rating: “outperform,” PT: $59) MS reported “solidly positive” Q4 results. MS’ medium-term targets and 2018/2019 financial targets, which include wealth management pre-tax margin of 26-28 pct and expense efficiency ratio of <73 pct should be well-received

Compass Point – (rating: “sell,” PT: $49) MS’ reported a “beat” on both top and bottom line, driven by gains in investment banking and wealth management businesses

Nomura – (rating: “buy,” PT: $64) Despite some pockets of revenue weakness, Q4 results showed key tenets of MS bull case. In the backdrop of difficult trading, MS’ results are impressive and expect strategic review to reinforce the bull case

Compiled by Diptendu Lahiri in Bengaluru; Edited by Maju Samuel

Filed in: Top News Tags: 

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