GHARIB: Good evening, everyone. A tale of two banks today — Citigroup`s quarterly profits tumbled, but Wells Fargo (NYSE:WFC) posted a record fourth quarter. And Tom, this is a key week for earnings with lots of reports from the financials.
HUDSON: Very, very busy week for earnings parade here Susie and between today`s results and JPMorgan`s (NYSE:JPM) disappointing numbers that we saw back on Friday, this is kind of a shaky start to the earnings season certainly for banks. Looking at those numbers from Citi, the banking giant earned $0.38 per share. That`s an 11 percent drop from a year ago and way below what analysts were expecting in the past quarter. Revenues fell to
$17 billion. Even though Citi made more loans, its investment banking business did not do well in the fourth quarter. But at Wells Fargo (NYSE:WFC) however, profits jumped to $0.73 per share. That`s a penny better than estimates, better news here, even though revenues slipped, but were still higher than what Wall Street was expecting.
GHARIB: Wells Fargo (NYSE:WFC) shares rose today, but most other bank stocks were down. Still, the major averages managed to end higher. By the closing bell, the Dow gained 60 points, the NASDAQ added 17, the S&P up
4.5 points. Erika Miller reports on how financial firms are likely to perform this earnings season.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: If there`s one sector that`s struggling these days, it`s financials.
JOHN BUTTERS, SR. EARNINGS ANALYST, FACTSET: Where some of these companies are seeing weakness, generally speaking, is in anything related to capital markets, so revenues from M&A activity, IPOs and so forth, trading revenues, and then mortgage activity.
MILLER: So why in the world are financials expected to post the biggest earnings increase of any sector with a whopping 70 percent gain? The answer, a quirk in the data. It turns out, the financial sector`s strength is due almost entirely to gains at one firm, AIG (NYSE:AIG).
BUTTERS: The company reported a huge loss a year ago. It was $16 per share. They had some charges. And a s a result, because they are expecting a profit this quarter, plus their overall weighting in the index, it`s just having an unusually large effect in this particular quarter.
MILLER: Take out AIG and earnings for the group are expected to be flat. But they may be worse than flat. Estimates for financials have been falling steadily since the start of the quarter, and many analysts think big banks will continue to struggle.
ERIK OJA, BANK ANALYST, STANDARD & POOR`S: The two biggest headwinds are the Dodd-Frank financial regulatory reform act and what`s going on in Europe right now. There`s less visibility on what`s going on in Europe and we have a pending possible default in Greece happening in March.
MILLER: Still, Oja believes now is a good time for patient investors to buy shares of regional banks, as well as one large bank.
OJA: We like Wells Fargo (NYSE:WFC). We have a “buy” recommendation on them because we think they have less of the legacy issues that affect Bank of America (NYSE:BAC) and Citigroup (NYSE:C).
MILLER: But others recommend steering clear of the entire sector.
MARK LAMKIN, CEO, LAMKIN WEALTH MANAGEMENT: By and large, you don`t know what`s in those balance sheets. I would not get tempted with financial yields. In fact, that`s a sector that we are avoiding and I have vetoed at my firm, not to be in my models.
MILLER: The performance of financials and AIG specifically will have a big impact on overall S&P 500 earnings. With AIG, earnings for the index are expected to rise 10 percent; without AIG, profits at the remaining 499 firms are forecast up just 3 percent. The ability of a single company to skew the data is not just a fluke this quarter. In the second quarter, the situation is likely to occur again. The difference is it will be a turnaround at Bank of America (NYSE:BAC) boosting returns instead of AIG. Erika Miller, NIGHTLY BUSINESS REPORT, New York.