Big banks are delivering better-than-expected performances this earnings season, with improving rate scenario and Donald Trump’s policy goals. This has considerably lifted market sentiments for banking stocks.
Banks’ trading income is expected to improve on the back of strength in fixed income, and currencies and equity trading. Further, investment banking fees are anticipated to support fee income, attributable to robust M&A activity, as well as an increase in debt and equity underwriting. However, mortgage banking income is projected to be dismal.
Expense control initiatives would likely continue to support the bottom line. Also, the provision requirement is not likely to be high due to the improvement in the energy sector.
While it is too early to predict the sector’s overall performance this quarter, per our Earnings Preview report, overall earnings for the Finance sector (of which major banks constitute a large part) in first-quarter 2017 are expected to be up 11% year over year.
Let’s take a look at three major banks that are scheduled to release their results on Apr 20.
BB&T Corporation BBT is scheduled to report first-quarter 2017 results before the opening bell. With a Zacks Rank #3 (Hold) and Earnings ESP of 0.00%, it cannot be conclusively predicted whether BB&T will be able to beat on the Zacks Consensus Estimate this time around.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Fee income is expected to remain relatively flat. However, on the basis of an improvement in earning assets, along with expectations of higher margins amid an improving rate scenario, net interest income is anticipated to witness robust growth. In addition, excluding merger-related and restructuring charges, and the FHLB restructuring charge, expenses are likely to be down slightly on a sequential basis. (Read more: Will BB&T Corp be Able to Beat Q1 Earnings Estimates?)
Notably, BB&T Corporation surpassed the Zacks Consensus Estimates in three of the trailing four quarters, as shown in the chart below:
KeyCorp KEY is also unlikely to beat on the Zacks Consensus Estimate in the first quarter. Nevertheless, the Dec 2016 rate hike, along with a steeper yield curve, should more than offset the weak loan growth, leading to an improvement in net interest income. In addition, the Mar 2017 rate hike should have some positive impact on margins. Non-interest income is expected to be positively impacted by increasing investment banking income, driven by higher debt placement fees.
Further, expenses are anticipated to remain under control. The bank is scheduled to report results before the opening bell. (Read more: Will KeyCorp be Able to Beat Q1 Earnings Estimates?)
KeyCorp posted a positive average beat of 3.68% for the trailing four quarters, having surpassed the Zacks Consensus Estimate in two of them, as demonstrated in the chart below:
The Bank of New York Mellon Corporation’s BK improving margins are expected to more than offset the reduced size of balance sheet, thereby modestly increasing net interest revenue in the to-be-reported quarter. Additionally, lower premium amortization is likely to have some positive impact on revenues. Furthermore, management expects its investment and other income to be in the range of $60–$80 million in this quarter.
On the expense front, management projects compensation expense in the first quarter to be marginally up, on a sequential basis.The bank is scheduled to report results before the opening bell. (Read more: Why BNY Mellon Stock Could Disappoint in Q1 Earnings)
Notably, BNY Mellon recorded positive earnings surprises in three of the trailing four quarters, with an average positive surprise of 5.0%, as shown in the chart below:
Check later on our full write-up on earnings releases of these stocks.
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