As banking stocks report their latest quarterly results en masse over the next couple of days, there have been consistent concerns about the major institutions' exposure to the crude sector as falling commodity prices continue to hammer the oil industry.
Analysts are expecting the six largest U.S. banks to report a 20% decline in earnings on average during the quarter, according to Thomson Reuters I/B/E/S data. Goldman Sachs (GS) for example is expected to report its worst results in over a decade.
But there could be surprises in the subsequent quarters according to CLSA analyst Mike Mayo. "This is one of the few quarters this decade with negative earnings and negative revenue growth year-over-year," Mayo told Bloomberg Television last week. "That is the bad news. The good news is the resiliency of the banking industry. Credit quality remains good, capital is higher, risk is down. As ugly as the first quarter is, we think the comparisons get better through the rest of 2016 and 2017."
So long-term investors may have to feel some pain early on, but the rewards in the coming quarters should be made clear. Here are the first-quarter expectations for the top six U.S. banks.
Bank of America (BAC) is scheduled to report its quarterly results on Thursday morning, with analysts on average expecting the bank to report earnings of $0.21 per share, a 24% decline from the previous quarter and 22% short of the $0.27 per share it reported a year ago. Revenue for the period is expected to be $20.3 billion.
The Action Alerts PLUS holding has the most exposure of the big banks to the oil sector, with $21.3 billion in outstanding debt to oil and gas companies. As a percent of its total loans, it is only third out of the big six, with 2.4% of its loans going to crude companies.
Bank of America shares were rising 0.4% in midday trading, though year to date the company has declined nearly 23%.
Fellow AAP holding Wells Fargo (WFC) is also reporting results on Thursday before the opening bell. Analysts on average are expecting the bank to report EPS of $0.98, a 6% decline from the $1.04 the company earned in the year-ago period. Revenue for the quarter, on the other hand, is expected to rise 1.6% to $21.6 billion.
Wells Fargo has the third most exposure to the oil sector, with $17 billion in outstanding loans. That total represents 1.9% of its total outstanding loans.
Wells Fargo shares were volatile Tuesday, spending time in both positive and negative territory on weak volume. The stock has declined more than 13% year to date.
JPMorgan Chase (JPM) kicks the proceedings off when it reports its quarterly results Wednesday before the opening bell. The bank is expected to report earnings of $1.26, a 13% decrease from the $1.45 it earned in the year ago period. Revenue for the period is expected to be $23.4 billion.
JPMorgan has $13.8 billion in loans to the crude sector, representing about 1.6% of its total loan portfolio.
Its stock was also rising today after experiencing a brief drop soon after the opening bell Tuesday. The stock is down more than 11% year to date and 7% over the past 12 months.
Citigroup (C) is scheduled to report its results Friday, April 15, before the opening bell. Analysts expect the company to report EPS of $1.06, a 30% drop off from the year ago period. Analysts have a consensus top line estimate of $17.6 billion.
Unlike its peers, the majority of Citi's loan exposure is in transportation and industrial, meaning that falling crude prices actually benefits the bank's bottom line.
Citigroup shares were up 1% midday on Tuesday, but was down 20% year to date. Over the past 12 months, the stock is down 21%.
Morgan Stanley (MS) is scheduled to report quarterly results next week on April 18. Analysts are expecting earnings of $0.48 per share, a 46% decline from the $0.85 per share it reported in the year-ago period. Analysts expect revenue of $7.97 billion for the quarter.
Morgan Stanley has about $4.8 billion exposure to the crude sector, or about 5% of its total loans -- the highest percentage among the large banks.
Shares were up over 2% in midday trading on Tuesday, but is down nearly 23% year to date. Over the past 12 months the stock has fallen 33%.
Goldman Sachs (GS) is the last of the major banks to report, a week from today on April 19. The bank is expected to report EPS of $2.45, which is less than half the $5.94 the company reported a year ago. Revenue for the period is expected to be $6.7 billion.
Goldman Sachs, which reported the crude exposure of its fellow banks in January, said that it has $10.6 billion in total exposure to the industry, but did not reveal what percentage of its total loans were attributable to the oil sector.
Goldman Sachs shares were up 0.7% Tuesday afternnon, after spending some time in negative territory. For the year, the company's shares were down 15%, while the stock has fallen over 23% over the past 12 months.