The catalyst currently driving the stock markets is global reporting on first-quarter results. The number-crunching season is already in full swing in the US. Fifteen S&P 500 companies have announced their earnings, and they clearly indicate a positive trend: 78 percent of the reported results exceed analysts’ expectations. The financial sector is particularly impressive. This sector has shown the greatest improvement in earnings growth since the end of the first quarter, increasing from -3.4 percent to -0.5 percent due to upward revision of the forecasts as well as positive surprises. Bank of America, Goldman Sachs and Morgan Stanley are the main contributors to this success, all three of which beat anticipated earnings per share by between six and 16 percent.
Simply comparing results to forecasts does not, however, say anything about growth. The consensus of analyst forecasts for 2019 evaluated by FactSet anticipates the strongest earnings growth amongst S&P 500 sectors to be in financials (Refer to graph). But significant differences between the US banks were already apparent at the beginning of the year. While JP Morgan reported a record profit, investment banks Goldman Sachs and Morgan Stanley were moving in the opposite direction. Goldman Sachs’ earnings plummeted by one fifth compared to the same period last year, to 2.18 billion dollars: it was obliged to contend with decidedly meagre pickings, especially in regard to the trading of stocks and bonds. Revenue in this sector dropped by 18 percent. Goldman is admittedly not alone: other institutions like JP Morgan and Citigroup also felt the decline in investment activity. The tariff dispute between the US and China was surely a factor in the caution exercised by capital market participants. All things considered, Goldman CEO David M. Solomon remains hopeful: “We are satisfied with first quarter performance.” View more information on investment solutions on the topic “US Banks show positive results”.
JP Morgan managed to set a new record on the revenue side: from January through March, earnings rose from 26.8 to 29.9 billion dollars - but the country’s largest financial institution is the exception. Many of the banks suffered losses over the same period. Bank of America was at least able to maintain the status quo, but Citigroup’s earnings fell by almost two percent to 18.6 billion dollars. Goldman Sachs’ corporate revenues dropped by 13 percent to 8.8 billion dollars. They have been working on broadening their base for a while. To better compensate for the fluctuations in financial markets, Goldman has been focusing on the online bank Marcus, which specialises in savings accounts for private clients. Morgan Stanley, which generates about half of its annual revenue from wealth management - and even managed slight growth in this field - still suffered modest losses at the corporate level. All together, the earnings of the six largest US banks fell seven percent in the first quarter. But Morgan Stanley’s CEO James P. Gorman was still satisfied with the results: “Despite a slow start this year, we managed to report sound results.”
Banks less dependent on developments in financial markets had an advantage early this year. These include Bank of America, Citigroup and JP Morgan, all of which benefit from a broader base. The latter earned five percent more in the first quarter compared to the previous year, reporting a record profit of 9.2 billion dollars. Bank of America, second-largest after JP Morgan, did even better: its strong retail banking division boosted the bank’s overall profit by six percent to reach 6.87 billion dollars. And Citigroup still managed to increase net profits by almost two percent - lower tax rates, cost cuts and higher interest rates on loans combined to produce 4.7 billion dollars in profit for the bank.
View more information on investment solutions on the topic “US Banks show positive results”.
