Large banks were among the best performers in the US stock market in the last months of 2019, eclipsing an already strong run for the S&P 500. Fourth-quarter earnings figures, released this week, suggest the rally wasn’t over-optimistic.
JPMorgan (US:JPM) led the pack by some distance, posting consensus-beating earnings of $2.57 (£1.98) a share, thanks to stable expenses, and a strong rebound in trading income. This resulted in the lender’s strongest ever year for revenues and net income and a whopping 19 per cent return on tangible common equity.
Results for rival Citigroup (US:C) were also well received, despite posting a far lower full-year return on common equity of 12.1 per cent. Fourth-quarter earnings per share were 31 per cent up on the prior-year period, thanks to a lower tax rate, the effect of share buybacks and a strong outing from the group’s fixed income trading and consumer bank – which in turn boosted revenues by 7 per cent.
A robust fourth quarter for bond trading was also in evidence at Goldman Sachs (US:GS), which saw a 63 per cent rise in net revenues from fixed income against weak 2018 comparatives. This performance, together with a decent outing from the company's asset management business, helped to offset another dip in investment banking revenues, and pushed earnings to $4.69 a share for the final three months of 2019, although this fell short of market expectations.
Revenues from Bank of America’s (US:BAC) bond trading desks also rose 25 per cent, suggesting fourth-quarter numbers for Barclays (BARC) could bring some positive news. However, Bank of America's shares edged down as decent loan growth failed to offset the impact of lower Fed rates and a 3 per cent drop in net interest income.
One exception to the strong sector outing was scandal-hit Wells Fargo (US:WFC). Shares in the San Francisco-headquartered lender dropped 5 per cent after fourth-quarter overheads overran analyst forecasts and resulted in adjusted earnings of 93¢ a share, 16 per cent below consensus estimates. Presiding over his first set of full-year results at the lender, chief executive Charlie Scharf described the bank as “a wonderful and important franchise that has made some serious mistakes”. The bank set aside a further $1.5bn in legal costs, in part to redress its role in a sprawling fake-accounts scandal.
| TIDM | Company | MC ($m) | Shares 1-yr (%) | Fwd PE (x) | DY (%) | P/BV | P/Tangible BV |
| BAC | Bank of America | 317,707 | 33% | 12 | 2.0 | 1.31 | 1.82 |
| C | Citigroup | 178,825 | 33% | 9 | 2.5 | 1.02 | 1.21 |
| GS | Goldman Sachs | 86,985 | 37% | 10 | 2.0 | 1.09 | 1.16 |
| JPM | JPMorgan Chase | 435,278 | 37% | 13 | 2.6 | 1.96 | 2.53 |
| MS | Morgan Stanley | 85,559 | 23% | 10 | 2.6 | 1.16 | 1.33 |
| WFC | Wells Fargo | 203,827 | 3% | 12 | 4.1 | 1.22 | 1.45 |
| Source: Capital IQ, data retrieved 15 Jan 2020 | |||||||
