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Trading to Weigh on Wells Fargo and Other Bankers in 4Q17

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Road ahead

JPMorgan Chase (JPM), Bank of America (BAC), and Citigroup (C) beat analyst estimates for EPS (earnings per share) in 3Q17. Wells Fargo (WFC) missed the estimate mainly due to a $1 billion charge for litigation related to its mortgage business pre-2007.

In 4Q17, banks (IYF) are expected to see subdued sequential growth on lower trading revenues, partially offset by higher net interest income.

Wells Fargo (WFC) is expected to post EPS of $1.02 and $0.97 in the upcoming two quarters, respectively. That reflects a continued weakness due to no credit growth and lower trading revenues, partially offset by continued strength in NIMs (net interest margins). The bank is expected to post revenue growth of 2.8% to ~$22.2 billion on a year-over-year basis. It’s expected to see 0.5% growth in revenues to $88.7 billion for 2017.

Peer comparison

Bank of America (BAC) is expected to see no growth in 4Q17 on a sequential basis, with EPS of $0.48 and a marginal fall to $0.47 in 1Q18. The bank has seen a strong run over the past year and a half, backed by strong growth in lending, deposits, asset management, and trading activity. However, trading could put some pressure on performance in 4Q17 on lower volatility.

Another major banker with a strong recovery is Citigroup (C), which is expected to see a sequential fall of EPS to $1.28 in 4Q17 and a rebound to $1.48 in 1Q18. It’s expected to see a top-line growth of 3.5% to $17.6 billion.

In line with the trend, JPMorgan Chase (JPM) is expected to see a sequential fall in EPS to $1.70 in 4Q17 and a strong rebound to $1.89 in 1Q18. The decline is mainly due to lower trading activity and subdued growth in credit offerings.

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