Bank earnings kick-off for 2Q of 2021, what does it mean to their share prices?

Bank earnings for 2Q are here. What we can expect?

The major currency hub banks that will begin the industry’s second quarter 2021 financial reporting season this week have declined in recent weeks, but their performance this year has been staggering. These stocks easily outperformed the market.

We expect that the trend throughout the first quarter of 2021 will continue to maintain momentum, with core banking still reporting weak loan demand, especially in C&I (commercial and industrial), partially offset by gains from auto and credit card loans, as the Federal Reserve data shows. The net interest margin may have improved in the second quarter, reflecting recent higher long-term returns, but has declined in recent days.

Bank earnings for 2Q of 2021

Goldman Sachs and JP Morgan have already reported their Q2 earnings on Tuesday before the opening. Goldman Sachs saw a jump in its earnings as record-breaking global trading activity helped Wall Street’s largest investment bank offset the slowdown in transactions, it beat analysts’ expectations for second-quarter earnings and compared with last year’s record performance, JPMorgan Chase & Co, the largest bank in the United States, also slowed significantly but the overall both biggest banks beat up expectations. However, JP Morgan traded negatively in pre market at -0.32% and Goldman Sachs traded higher at +0.92%.

Bank earnings improve for Citigroup?

Wednesday: Citigroup is off to good start to the new fiscal year, with a profit of $ 3.62 per share in the first quarter, but weak revenue at $ 19.3 billion. However, the main headline is that Citigroup announced its withdrawal from retail banking in 13 markets in Asia and Europe, including China, India, Russia and South Korea.

As Citi improved its outlook for the US economy, Citi reinvested its loan loss reserve of US$3.9 billion into its business, which also boosted revenue. Citi issued a warning on its business income in the previous quarter, which had an impact on Citi’s stock price. The low level of volatility compared to last year has always been a challenge for Bank of America. However, Citigroup also noticed a slowdown in loan growth because consumers retained the benefits of stimulus payments.

What to expect in Citigroup 2Q earnings?

We estimate that Citigroup’s tax revenue for the second quarter of 2021 will be approximately US$17.55 billion, slightly higher than the market’s consensus estimate of US$17.46 billion.

The bank relies heavily on its global consumer segment, which accounts for about 40% of total revenue. Due to the lower interest rate environment and declining consumer demand, segment revenue in 2020 will be affected, almost offsetting the growth of investment banking and sales business. Therefore, Citigroup’s revenue for the full year of 2020 is 74.3 billion U.S. dollars, which is the same as the figure in 2019, and interest rate headwinds continue to plague the bank’s total revenue for the first three months.

 It reported total revenue of $ 19.3 billion, a 7% year-over-year decrease, primarily due to a 12% increase in NII. On the other hand, the company’s investment banking and stock trading businesses have achieved positive growth.

We expect the same trend to continue in the second quarter of fiscal 2021, with sales and investment banking businesses driving revenue growth and lowering net interest margins, hurting revenue.

Citigroup’s adjusted earnings per share for the second quarter of 2021 is expected to be $ 1.91, nearly $ 5 less than the consensus estimate of $ 2.02. Due to the Covid19 crisis and the economic slowdown, the repayment capacity of bank customers deteriorated in 2020. As a result, the company increased its allowance for credit losses from US $ 8.4 billion to US $ 17.5 billion to offset the increased risk of credit default. This had an impact on its profitability-adjusted net profit which fell 46% year-on-year. In other words, Citigroup reduced its provisions in recent quarters, including the provision for credit losses of $ 3.9 billion in the prior quarter. This significantly improved profitability in the first quarter, with net profit increasing by 213% year-on-year. We expect the provision to fall further in the second quarter results.

Technical outlook:

The big bank shares declined by more than 4% four weeks back after the company warned investors that its trading revenue for Q2 fiscal would decline by 30% and with earnings for the company in our doorsteps. Investors will be eyeing to see if the projection for decline will be possible by more than the number projected by the company.

The stock has recently formed a downside channel after testing the resistance level at $71.64, with the earnings ahead traders will be eyeing a first breakout on the inside trendline (Green) for a bullish outlook. A further break on the resistance level could see the bulls make an attempt to break the upper resistance level for more buying pressure.

On the other hand, the bears will be eyeing bank earnings and that they miss expectations for a further downside momentum. A move below the support level could see the stock price below $64 level since Mid-February 2021.

Lulama Msungwa – Financial Market Analyst