The end of earnings season is almost near after corporations have issued reports on their first quarter earnings for fiscal 2016. Banks have witnessed mixed results, as some banks beat the analyst forecast, while some shortly declined. The earnings of the banks were affected by the slump in oil prices, including low interest rates, and high market volatility.
JP Morgan Chase & Co. issued a research report on Large Cap US banks, including earnings of 1QFY16. The reports focused on major themes like credit quality on energy loans, cost-cutting measures, and market instability amid the first quarter.
It is likely that earnings reports were far better than feared, as a possible recession fear hit amongst investors led by bank stocks which tanked over 30% in a month.
The decline in credit quality which was fueled by exposure in the energy sector was highlighted on the current themes for the banks. It was reported that a switch in performance in the financial sector was witnessed. Meanwhile, lower quality banks outperformed the higher quality banks.
Subsequently, the credit quality trend had switched, brought by reduction on lower quality loans in the energy sector, which sent bank reserves lower like Bank of America, including Citigroup, SunTrust, and Citizens.
Apparently, energy loans bring higher risk in higher quality banks like US Bancorp and Wells Fargo. Energy loans have been actively increasing on non-performing loans, along with net-charge-offs, and also provision for loan losses.
For banks involved in higher exposure to energy have witnessed these measures to increase on their balance sheets. Moreover, the reports claim a maintenance of the credit quality of the US Bancorp in spite of its conceivable growth of other banks.
In consumer lending, other loans like auto loans remained steady on their credit quality. However, mortgage loans are anticipated to rally, fueled by an increase in refinance and purchase applications on a quarter-over-quarter basis.
In addition to the highlighted themes on the banks are the cutting costs as profits are difficult to squeeze due to lower interest rates. Though many banks were able to trim expenses as well as progress their efficiency ratio.
Regional banks like SunTrust and Citizen Financial were able to trim their expenses as well, while other banks like BBT and Fifth Third were struggling as their expenses continued rallying. Meanwhile, Bank of America and Citigroup cost cut measures as they aim to restructure their businesses, while Bank of New York prominently stands against trusted banks for weighty cost trimming.
During the first two months of this year, the capital markets begun to struggle as oil prices hit $26 a barrel, but slightly improved in March. The equity market bounced, citing an increase in equity underwriting. However, mergers and acquisition voles, along with loan syndications stayed lower. The report anticipates the market to maintain a moderate improvement trend, as a pickup is anticipated on the mergers and acquisitions.
Conversely, Large Cap US bank stocks are far better than expected as the S&P 500 was outperformed after issuing financial earnings. However, lag and expectations are considered on a full recovery year-to-date, and postponed decision of the Fed on rate hike remains wary.
JP Morgan Stock Price Update
The JP Morgan stock hit $63.79 after the market close. Meanwhile, company shares rallied by about 0.93% or $0.59 from the prior day.
Shares are currently trading higher compared to the prior year, citing shares waning up by 0.28% since then.
The 52-week high of the stock price settled at $70.61, that was hit on July 2015. Its 52-week low settled at $50.07, reached on August 2015.