Why Investors in Big Banks Are Happy Today

It's earnings season for the nation's big financials, and in some ways it feels like the December holidays. Several of the sector's top-name stocks are continuing to deliver gifts of share-price jumps in the wake of the Q3 results they released earlier this week.

One of the fatter Santa Clauses on the market today is Bank of America (NYSE: BAC  ) . It's outpacing the Dow by a convincing margin, thanks in no small part to the afterglow of its Q3 earnings. The giant lender posted a bottom line of $2.5 billion ($0.20 per share), more than seven times the $340 million ($0.01) it earned in Q3 and $0.02 higher than the average analyst estimate. Revenue was also up, by 5% to $21.5 billion.

Those numbers are encouraging given the challenges facing commercial banks these days. To name a big one, rising mortgage interest rates are putting a tight squeeze on that segment, which in previous quarters had been a nice money spinner for lenders. B of A, for instance, saw its mortgage income constrict to $586 million in Q3, from the lofty $2.0 billion in the same quarter last year. So it's admirable that it was able boost its bottom line and add a few dollars to overall revenue.

Somewhat less impressive were the quarterly figures posted by Citigroup (NYSE: C  ) . Net income dived by 23% on a year-over-year basis to $3.2 billion. Total revenues were up, by 15% to $17.9 billion, but much of this gain was due to the sharp improvement of the bank's Citi Holdings "distressed" assets division. The unit was revenue positive for the quarter, bringing in $1.3 billion as opposed to the nearly $3.7 billion it drained away in Q3 2012.

Investors liked what they heard from B of A, but if today's trading patterns are any indication, they were more impressed by the performance of the sector's regional players. The favorite at the moment seems to be KeyCorp (NYSE: KEY  ) , which saw fairly solid growth in attributable net income ($229 million, compared to Q3 2012's $211million loss) and average loans ($53.3 billion vs. $50.7 billion).

Shares of US Bancorp (NYSE: USB  ) and PNC Financial Services (NYSE: PNC  ) are also doing nicely on the day, thank you very much. The former managed to keep its head above water in terms of both revenue and net profit, with those line items trending more or less flat on a year-over-year basis ($4.9 billion for net revenue, $1.47 billion for bottom line).

PNC, meanwhile, fought off a nearly 30% drop in mortgage banking to grow its net by 12%, to just a little more than $1 billion. Total revenue was down but not alarmingly so, coming in 4% under Q3 2012's result to land at $3.9 billion.

All in all, it's been a fairly good earnings season so far. Given the difficulties the sector faces and will continue to battle, banks are hanging tough and producing results that the market likes and is willing to reward. Let's see if they can keep that momentum going into the real holiday period.


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