Why This Was a Banner Week for Banks

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It's great to be a bank investor sometimes, and this week was one of those times. Most of the major banks reported Q4 and fiscal 2013 earnings during the past few days and, by and large, these were strong and encouraging.

Let's start with Bank of America (NYSE: BAC  ) . The company's Q4 results blew way past those of the same period the previous year. In fact, its quarterly EPS ($0.29) eclipsed the $0.25 figure for the entirety of 2012. The bank impressed investors with its gains in numerous business areas, particularly mortgage banking (which flipped to a profit, to the tune of $850 million against a Q4 2012 loss of $540 million).

Speaking of mortgages and the financial giants who love them, home lending top dog Wells Fargo (NYSE: WFC  ) also posted results that made investors very happy. The bank again posted a record-busting quarter -- the 11th in a row, by the way -- with EPS topping the previous high of $0.99 recorded in Q3. This is admirable given the general slowdown in the company's bread and butter, mortgage lending. It funded $50 billion in such loans during the quarter, a dramatic drop-off from the $125 billion in the heady days of Q4 2012. Thankfully, the bank compensated for this decline, and then some, with excellent performance in most of its other businesses.

Another financial major proving adept at fighting headwinds is JPMorgan Chase (NYSE: JPM  ) . As the apparently eternal blame target for the excesses of the crisis era, the bank is constantly in the crosshairs of government investigations, and lawsuits from other disgruntled parties. This is costing the company many billions of dollars; but despite this, it managed to trump analyst estimates for its Q4. The bank's net was $1.40 per share, against the average analyst expectation of $1.35. Legal expenses cost around $0.27 per share during the quarter, which says something about its ability to earn, given the piles of dough it has to spend on lawyers and settlements.

One bank posting extremely good results this past week was PNC Financial Services (NYSE: PNC  ) . Its Q4 earnings advanced by 46% to reach a new quarterly record of just over $1 billion, or $1.85 per share. That was pretty far above the average analyst projection of $1.65. It seems that those analysts hadn't counted on some of the bank's business units doing as well as they did. Exhibit A: asset management, clocking in with a non-interest income improvement of 21% (to $364 million) on a year-over-year basis. The bank's sharpened focus on collecting fees is also producing results, with take from consumer-service fees rising 11%, to $327 million, this past Q4.

As with every earnings season, not every company in the sector scored a win for this past quarter. Citigroup (NYSE: C  ) posted Q4 earnings of $0.82 per share, a nice improvement from the year-ago quarter's $0.69, but short of analyst projections. This was on the back of a 2.7% year-over-year drop in revenue, to just under $18 billion. Much of this decline can be attributed to a 15% drop in fixed-income trading revenue, a crucial area for the company (all told it took in $2.3 billion for the quarter). Expenses remain high, meanwhile, and the bank's effort to slice them by $900 million for 2013 fell about $30 million short.

On a sector-wide basis, though, this earnings season has been a fine one for the nation's major financials, resulting in one of the sector's best weeks in quite some time. Hopefully, its major players can keep that momentum going well into the rest of the year.

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Eric Volkman

Eric has been writing about stocks and finance since the mid-1990s, when he lived in Prague, Czech Republic. Over the course of a varied career, he has also been a radio newscaster, an investment banker, and a bass player in a selection of rock and roll bands. A native New Yorker, he currently lives in Los Angeles.

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8/28/2015 4:02 PM
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