MT Insider: Ahead of Q3 Bank Earnings, Reassessing Near-Term Fundamentals


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The financial sector is up 25% year to date as rates have moved higher. Given the unexpected delay in QE3 tapering, analysts have an opportunity to reassess near-term fundamentals ahead of the Q3 earnings season.

Investors still expect a correction in 10-year yields, as evidenced by hedge-fund managers' decreasing their short positions in 10-year note futures, according to the U.S. Commodity Futures Trading Commission.

In fact, U.S. government debt has actually lost investors 4.3% this year, which would be the biggest annual decline since data going back to 1978, based on analysis by Bank of America.

Goldman Sachs said in a report on Friday it is most bullish on JP Morgan ( JPM ) and Bank of America ( BAC ) due to strength in investment banking coupled with easier year-over-year comps.

In Goldman's view, the extension of QE3 likely had negative implications for FICC (Fixed Income, Currencies, and Commodities) revenues and could drive several earnings misses.

Goldman is cautious on M&T Bank Corp ( MTB ), EverBank Financial Corp ( EVER ), U.S. Bancorp ( USB ), Morgan Stanley (MS), First Horizon National Corp (FHN) and BB&T (BBT).

On the other hand, diverging loan trends and a slowing rate of decline in margins should be an incremental positive for other banks such as Region's Financial (RF), PNC Financial Services Group (PNC), First Republic Bank (FRC) and Huntington Bancshares (HBAN).

For regional banks, lower loan syndication from rate volatility could be a potential headwind, with PNC and Fifth Third (FITB) best positioned while Wells Fargo (WFC) and KeyCorp (KEY) are most at risk, according to the report.

Loan growth was virtually non-existent in 3Q, but a mix shift to commercial real estate, which is accelerating, should aid BBT, Zions Bancorporation (ZION), and First Niagara Financial (FNFG).

Lastly, reserve releases should continue to outpace expectations, and the analyst sees upside to earnings for SunTrust Banks (STI), RF and Huntington Bancshares (HBAN).

IXC 53.18 +0.28 +0.53

JPM 52.45 +0.51 +0.98

MTB 112.64 +1.53 +1.38

EVER 14.38 -0.01 -0.07

USB 36.53 +0.18 +0.50

MS 26.90 +0.05 +0.19

FHN 11.24 +0.23 +2.04

BBT 33.64 +0.24 +0.72

RF 9.41 +0.12 +1.24

PNC 73.00 +0.58 +0.80

BAC 14.01 +0.01 +0.07

FRC 46.99 +0.39 +0.84

HBAN 8.45 +0.14 +1.62

ZION 27.77 +0.69 +2.53

CMA 39.45 +0.39 +1.00

FHN 11.25 +0.23 +2.09

STI 32.86 +0.27 +0.83

FNFG 10.35 +0.02 +0.19

FITB 18.15 +0.15 +0.86

KEY 11.62 +0.17 +1.48

WFC 41.16 +0.16 +0.39

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright (C) 2014 All rights reserved. Unauthorized reproduction is strictly prohibited.

This article appears in: Investing , Commodities
More Headlines for: BAC , EVER , JPM , MTB , USB

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