Mastercard (MA) reported third quarter revenues rose 15% to $3.9 billion with net income charging 33...
Financials Take the Market Down
01/17/2014 11:00 am EST
There were some big disappointments in the financial sector yesterday, writes MoneyShow's Jim Jubak, however, he does feel that there might be some good news coming from some financial institutions today.
Not surprising that the financial sector led the US market down yesterday. The Standard & Poor's 500 stock index (SPX) closed down 0.13% on January 16 as the Financial Select Sector SPDR (XLF) dropped 0.63%.
Yesterday's villain was a big miss by Citigroup (C) before the open. Today doesn't look a whole lot better for the sector because, after the close on January 16, American Express (AXP), Capital One (COF), and Sallie Mae (SLM) all reported significant earnings misses. American Express came in with fourth quarter earnings of $1.21 a share versus a consensus projection of $1.25. Capital One reported $1.45 a share instead of $1.57. And student loan company Sallie Mae announced 61 cents a share versus the analyst consensus of 73 cents a share.
The three stocks were down 0.14%, 2.21%, and 5.08% in after-hours trading.
American Express was the victim of expectations that were a bit too heady. The company just about matched Wall Street's projected revenue number at $8.54 billion (just shy of consensus at $8.55 billion) and came in just a few pennies short on earnings per share, despite solid cuts to operating expenses (down 8%), an increase of 8% in spending by card members, and a drop in reserves for loan losses of 17% from the fourth quarter of 2012. Wall Street wanted more after the 59.3% return for the stock in 2013.
On the other hand, Capital One reported the kind of bad news we've heard from banks such as JPMorgan Chase (JPM) and Citigroup C. Revenue dropped 1.4% from the fourth quarter of 2012. Loan growth was worse than piddling, with auto loans falling by 3% and home loans declining by 4%. Net interest margins declined 16 basis points and provision for credit losses increased 13%.
These results, unfortunately for the sector, echoed Citigroup's earnings report before the open yesterday. The bank reported 85 cents a share in earnings when Wall Street was looking for 99 cents (or 95 cents, depending on what consensus counter you follow.) The culprits were weaker than expected revenue, higher than expected provisions for loan losses, and greater than expected expenses. (Citigroup is a member of my Jubak's Picks portfolio.)
The good news for the sector and the market is that today's financial reporting from banks is dominated by regionals and that group has been doing better than the big money center banks. For example, PNC Financial Services (PNC), which reported yesterday, January 16, beat the consensus earnings estimate of $1.63 by 22 cents a share. Revenue also came in higher than expected at $4.07 billion versus the consensus of $3.83 billion.
“Better” is a relative term, of course. Things are tough, even for the regionals. Loans at PNC, for example, grew by just 1% in the quarter. And the bank did tell Wall Street to expect that revenue for the 2014 fiscal year would be lower than in fiscal 2013.
Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of any stock mentioned in this post as of the end of December. For a full list of the stocks in the fund, see the fund's portfolio here. For more of Jim's posts and picks check out his free site here or his subscription site here.
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