Why Citigroup's Earnings May Surprise

Thanks to the earnings reports from Wells Fargo (NYSE: WFC  ) and JPMorgan Chase (NYSE: JPM  ) on Friday, we have a bit of color on the banking sector -- and a bit of a jump start on what to expect as Citigroup (NYSE: C  ) reports its first-quarter earnings before market open on Monday.

Analysts expect earnings of $1.00 a share, which is the same as last year's first quarter. Based on the earnings reports of Wells and Chase as well as recent history, here are some things to be ready for -- some things that may lead to an earnings surprise:

  • Both Wells and JPMorgan showed deposit and loan growth. That's a good sign for Citi. So is the improved performance of JPMorgan's investment-banking business over the dismal fourth quarter.
  • All the credit card-toting banks are losing some debit card fees because of the Durbin amendment, which caps interchange fees. JPMorgan's noninterest revenue went down 10% in the segment that houses debit cards.
  • The news reported that Citi failed its Federal Reserve stress test back in March -- but it was only because Citi asked to return capital to shareholders through some combination of increased dividends and share repurchases. Bank of America (NYSE: BAC  ) had similar capital positions but didn't ask to get more aggressive, so it avoided the bad press it got last time when it made Citi's mistake. I'd love to get more color from Citi's management.
  • Citigroup and Bank of America are both working to slim down operations and repair their tattered reputations. As always, we need to be vigilant that Citi is making moves in the right direction.
  • Citi is the most global of the big banks, so we'll want to see how its operations around the world are doing, especially in hot-spot places such as Europe and China.
  • It's possible for Citi to report solid earnings and still get dinged. Both Wells and Chase beat analyst estimates and reported good operational results, but both were down more than 3% on Friday.

Get ready for more earnings season surprises
I can't wait to dig into Citi's earnings release on Monday. Till then, check out our brand-new free report: "5 Stocks Investors Need to Watch This Earnings Season." It details what to look for from Apple and four other must-watch companies as they report their latest results. Access if now.

Anand Chokkavelu owns shares of Bank of America, Citigroup, Wells Fargo, JPMorgan Chase, and Apple. He also owns long-dated options on Bank of America and warrants on Citigroup, Wells Fargo, and JPMorgan Chase. The Motley Fool owns shares of Apple and Wells Fargo and has created a covered strangle position in Wells Fargo. Motley Fool newsletter services have recommended buying shares of Apple and Wells Fargo and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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10/25/2016 9:46 AM
C $49.66 Up +0.08 +0.16%
Citigroup CAPS Rating: ***
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Bank of America CAPS Rating: ****
JPM $68.80 Down -0.07 -0.10%
JPMorgan Chase CAPS Rating: ****
WFC $45.58 Up +0.06 +0.13%
Wells Fargo CAPS Rating: ****