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US Banks’ 3Q15 Earnings Lacked Steam

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Bank earnings were lackluster

In this series, we’ll look at some key trends that have emerged from the third-quarter earnings of US banks (SPY). In the past two weeks, five major US banks, Wells Fargo (WFC), Bank of America (BAC), JPMorgan Chase (JPM), Citigroup (C), and Goldman Sachs (GS), reported their third-quarter earnings.

Overall, earnings on an adjusted basis were lackluster and most of them missed analysts’ estimates. Results in the third quarter were severely affected by increased market volatility, interest rate uncertainty, pressures in oil and gas, and a slowdown in mortgage activity.

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Trading revenues and investment banking activities are slowing down due to global uncertainty, and banks are struggling to generate profits in a low-interest environment. When we analyze these earnings closely, we see that these banks are employing strategies that, in the long run, could be key drivers of profitability.

The chart above shows the reported 3Q15 earnings per share for JPMorgan Chase, Citigroup, Bank of America, Goldman Sachs, and Wells Fargo, and compares them to consensus estimates.

A report from Fitch talks about how banks have been trying to offset the impact of external factors by working toward lower expenses. During the third quarter, all banks reported lower expenses on a linked-quarter basis, driven by lower legal expenses.

As well, JPMorgan, Citigroup, Goldman Sachs, and Wells Fargo all reported significantly lower capital market revenues compared to last year on a linked-quarter basis.

Correction: This post originally did not clarify that earnings were lackluster on an adjusted basis. Similarly, the chart originally indicated “reported earnings” rather than “adjusted earnings.” We have since updated the post with these two revisions. We regret these oversights.

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