16 April 2021

Citigroup, BofA Shares Tumble Despite Solid Q1

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What’s happening: Shares of Bank of America and Citigroup slipped in extended trading on Thursday, despite both banking majors reporting their first-quarter results ahead of expectations.

What happened: Financial stocks continued posting strong results yesterday, with Bank of America and Citigroup joining their peers to release loss reserves that had been set aside to cover covid-19 loan defaults.

Despite solid quarterly results, shares of Bank of America and Citigroup edged lower on Thursday, a day after banking bigwigs like JPMorgan Chase, Goldman Sachs Group and Wells Fargo drove the S&P 500 higher with their stellar earnings.

How were the results: Bank of America and Citigroup reported strong growth in earnings for the first quarter, with both top- and bottom-line metrics exceeding market views.

  • Citigroup reported profits of $7.94 billion, up significantly from $2.54 billion in the same quarter last year. The bank earned $3.62 a share on revenues of $19.3 billion, beating the consensus estimates of $2.60 a share on $18.8 billion in revenues.
  • Bank of America’s net income climbed to $8.05 billion, from $4.01 billion a year ago. The Charlotte, North Carolina-based bank reported quarterly earnings of 86 cents per share or revenues of $22.9 billion, surpassing expectations of 66 cents per share and $22.1 billion, respectively.

Why it matters: The latest results from Citigroup and BofA echoed the strong reported at JPMorgan Chase and Goldman Sachs, driven by higher trading volumes amid equity market volatility and heightened activity from blank-check firms.

The biggest US banks have exhibited resilience amid the covid-19 pandemic, having gained from higher deal fees and increased client activity. Although various businesses remained closed in the face of the pandemic, the covid-19 vaccine rollout and fiscal stimulus efforts have helped consumers increase their spending, supporting the overall economic recovery.

Both banks released billions from their reserves, which they had put aside last year to protect themselves from possible loan defaults. The release of these funds added to their bottom-line in the first quarter.

Investors also cheered as BofA announced a $25 billion buyback program, while Citigroup revealed plans to streamline its operations, which involves pulling out of 13 Asia and EMEA markets to focus on their four largest regions in Asia.

Both Citigroup and Bank of America reported revenue declines at their consumer banking division. Citi’s consumer bank revenues fell 14% year-over-year, amid lower card volumes and interest rates. Revenues generated by the institutional client group also shrank 2%. BofA consumer banking revenue declined by 12%. Investors were also concerned about higher expenses and downbeat loan growth at these banking majors. Bank of America’s consumer banking loans declined 8%, while noninterest expenses grew 15% amid higher pandemic-related costs.

How shares responded: Bank of America’s shares shed 2.9% to close at $38.74, while Citi’s stock slipped 0.5% to settle at $72.54 on Thursday. Shares of BofA and Citi have surged over 17% and 13%, respectively, over the past three months.

What to watch: Markets will keep an eye on the quarterly earnings release from other banks, including Morgan Stanley and Bank of New York Mellon Corporation, which are scheduled to report later today.

The Markets Today

     

US stocks will be in focus today ahead of a basket of economic reports from the country.

Context: Wall Street stocks surged to record highs on Thursday, following strong earnings from major companies and the release of positive economic reports.

Details: US markets have recently been on a roll, setting new records amid the reopening of the economy and massive fiscal stimulus measures. The S&P 500 index has climbed around 11% year to date, with energy and financial stocks leading the gains.

Investor sentiment was buoyed by strong economic reports from the US, pointing towards a recovery in consumer spending and the labour market.

Retail sales jumped 9.8% in March, as further stimulus from the government drove in a strong rise in consumer spending. The latest figure exceeded market expectations of 6.1% growth.

The Labor Department also reported the lowest initial jobless claims since March 2020. Around 576,000 new claims were filed in the week ending April 10, significantly better than the consensus estimate of 710,000.

Markets remained elevated with a strong beginning to the earnings season. Several major companies, including UnitedHealth, PepsiCo, and a number of banking behemoths, reported upbeat quarterly results.

Technology shares recovered on a decline in bond yields. The FAANG (Facebook, Amazon, Apple, Netflix and Alphabet) stocks added over 1% each as the US 10-year Treasury yield fell below 1.56% on Thursday.

The Dow Jones jumped 305.10 points to breach the 34,000 mark for the first time and close at 34,035.99 on Thursday. The S&P 500 added 1.1% to settle at a record close of 4,170.42, while the Nasdaq 100 advanced 1.6% to 14,026.19.

What to watch: Markets await data on housing starts, building permits and consumer sentiment from the US. Housing starts, which dipped 10.3% to an annualised rate of 1.421 million in February, are expected to recover to 1.613 million in March. Building permits are also projected to rise to 1.75 million in March. The University of Michigan's consumer sentiment index is expected to improve to 89.6 in April, from a reading of 84.9 in March.

Rising covid-19 cases remain one of the top concerns for markets, with infections surging past 31.4 million in the US.

Other Markets: European trading indices closed higher on Thursday, with the FTSE 100, German DAX 30, French 40 and STOXX Europe 600 up by 0.63%, 0.30%, 0.41% and 0.45%, respectively.

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Futures at 0400 (GMT)

What else to watch today

     

Italy's balance of trade, Eurozone's balance of trade and consumer price inflation, India’s foreign exchange reserves, Canada’s housing starts, car registrations, foreign stock investment and wholesale sales, Russia’s producer prices, Australia's new home sales as well as the US Baker Hughes crude oil rigs.

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