NEW YORK - Ladies and Gentlemen the much awaited banking week is in full swing. Today Citigroup, Wells Fargo and M&t Bank reported. Only one of the companies showed decent results and that was king pin Wells Fargo who reported $4.1 billion of profit.
Tomorrow two fantastic regional banks will report, U.S. Bancorp and PNC Financial. Each one has been deemed to be fantastic in its own way. PNC used the financial crisis to expand its business, while USB has basically stayed put. USB is known to have the leading industry banking ratios in efficiency, ROA and ROE. The three most important banking ratios. However would this bank benefit more if they decided to sacrifice their beloved ratios for profit? USB has not expanded as much as its peers. USB is up 23% since October 18th and analysts expect 63 cents a share of earnings. PNC Financial known as the bank that did it the right way during the financial crisis and has received high praise for the last two years and has really becoming a banking leader. PNC Financial is up 26% since October 18th and analysts expects EPS of $1.41. This amount likely excludes a charge PNC will record for redeeming preferred shares early.
Thursday - Will see Bank of America report. BAC, like Citigroup is also only up 10% but the bank's stock has rebounded 35% from its lows this year. The bank has had trouble returning to normal operating profitability. The company has continually faced one time charges for over 3 years. The company will likely show the market on Thursday that it has turned the corner. Analysts expects 23 cents a share of earnings. This estimate likely excludes CVA and DVA which are debit and credit valuation adjustments. These accounts have come up with regularity for large banks of late. These assets and liabilities are calculated using the bank's own credit default swap spreads. So when the spread widens it is deemed more likely the bank will default and therefore the liability is lowered since they are less likely to pay it. Not only is this the stupidest accounting convention ever it is still not eliminated. BAC had over $4 billion of gains in the last quarter from this account. Investors will have to add back losses or subtract gains in the future quarter. Its likely BAC will have large losses from this account this quarter as their spreads should have tightened as the general market improved. BAC currently has about $15 billion of aggregate gains from this account. BB&T will also report on Thursday. BB&T is probably the most overvalued bank in the U.S. along with M&T Bank. However unlike M&T it has shown no exemplary performance but investors have rewarded it more than almost any other bank. The stock is also up 26% since October 18th. Analysts expect 53 cents a share in earnings which will continue to give BB&T the industry leading PE ratio. Almost twice as high as banks with much better performance including PNC, WFC and USB. The diversion from the mean is astounding. Capital one Financial is up 22% since October 18th but this is half a credit card issuer half a bank. The company made two large purchases this year. It purchased ING's online U.S. division and an HSBC division. The financial group has benefited from low provisions on credit cards. These provisions will likely go up forward pulling down COF's earnings. HBAN also reports on Thursday, the stock is up 19% since October 18th. The bank continues to make poor returns for shareholders.
On Friday - Fifth Third Bancorp will kick it off. The cocky bank was a fourth quarter star as it appreciated 32% in value. The bank has seen its earnings rise while taking around average provisions for loan losses. Bank's like Keycorp are benefiting from historically low provisions for loan losses. Fifth Third is looking to join some of the star banks including PNC, WFC and USB. However the bank does not have the same sort of pedigree. Suntrust will also report on Friday. The stock is up 15% this quarter despite its stock being very volatile. Investors will look at their mortgage repurchase issues and if STI can finally show improved profitability. The company has earned very poor returns over the last year.
Banks who will wait until the next week include Keycorp. This bank has amazingly poor earnings but its stock beat all other banks with 36% performance in Q4. The company will likely have another poor earnings quarter. Regions Financial known colloquially as Rejects Financial will also report. Rejects has soared in Q4 by 38%. Investors seem to have forgotten the bank still owes TARP money and is the only major bank to still hold such. The bank continues to face large loan losses from poor loans made during the housing boom. Its stock will likely run-down after the quarter. The problem with Regions is it is not a stand alone business anymore and it needs a larger bank to take it over. Banks like Wells Fargo, PNC or BAC would love to do so but the government would make up a lot of rules. This makes an acquisition unattractive. As a stand alone business RF will likely continue to make poor returns for the foreseeable future.
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