Bank Earnings Continue to Shock and Awe As Goldman Sachs, PNC Blow Out Expectations

The parade of bank earnings reports continued prior to the open on Wednesday with heavy-hitter Goldman Sachs leading the march.

Goldman Sachs (GS)

Roughly 10 years ago, Rolling Stone columnist Matt Taibi slapped the moniker of "vampire squid" on Goldman Sachs, describing how their financial tentacles reached into every asset class around the world. The name stuck and Goldman's reach proved unimpaired by the coronavirus as the firm blew away analyst estimates for second quarter revenue and earnings.

EPS rose 7.7% to $6.26 on revenue of $13.3 billion, a 41 percent improvement over the same quarter a year ago. Fixed-income trading revenue shot up 1.49% to $4.24 billion, the best performance in nine years. Equities revenue jumped 46% to $2.94 billion, the highest in 11 years. Investment banking climbed 36% to $2.66 billion.

Analysts were looking for the firm to generate EPS of $4.27 on revenue of $10.07 billion.

Provision for credit losses rose to $1.59 billion from $214 million a year ago and $937 million in Q1, reflecting predictions for deteriorating economic conditions but Goldman's loan loss reserves continue to be much smaller than rival banks because of their light footprint in consumer banking though exposure to commercial real estate is still significant.

Goldman Sachs stock climbed 4.1% to 222.76 in premarket trading.


Bank of NY Mellon (BK)

The company reported revenue of $4.0 billion and earnings per share of $1.01, which was flat compared to last year's second quarter. BNY Mellon added $142 million to its loan loss reserves and increased Tier 1 Capital by $2.55 billion, including issuance of $1 billion of preferred stock. Overall there were no surprises in the company's second quarter report.


PNC Financial (PNC)

Bolstered by the sale of its interest in Blackrock in May, U.S. regional bank PNC Financial Services Group (PNC) reported second-quarter profit more than doubled. Net income attributable to common shareholders jumped to $3.59 billion, or $8.40 per share, in the three months ended June 30, from $1.31 billion, or $2.88 per share, a year earlier.

However, the company reported a net loss from continuing operations, which excludes the one-time gain from shedding its Blackrock investment, was $744 million.

PNC set aside $2.46 billion as loan loss provisions in the quarter, up from $180 million a year earlier.

The bank’s net income from discontinued operations, which includes gains from the sale, was $4.4 billion. The company also said it will continue the temporary suspension of its common stock repurchase program and reaffirmed the quarterly dividend to shareholders of record at $1.15 per share.


US Bancorp (USB)

Beating lowered EPS estimates, U.S. Bancorp (USB) reported second quarter earnings per share of $0.41, compared to $1.09, a year ago. On average, 22 analysts polled by Thomson Reuters expected the company to report profit per share of $0.22 for the quarter. Net income applicable to common shareholders declined to $614 million from $1.74 billion.

The company's provision for credit losses for the second quarter of 2020 was $1.737 billion, a huge increase over the previous quarter and year-ago quarter, reflecting deteriorating economic conditions due to the coronavirus.

Second quarter total net revenue was $5.84 billion compared to $5.82 billion, previous year, in line with estimates. Net interest income on a taxable-equivalent basis was $3.22 billion, a decrease of 3.2 percent.

Thus far, the banking segment, which was largely routed during the early days of the pandemic issue, has delivered results for the second quarter above and beyond even the most optimistic. With US GDP expected to contract by as much as 45%, the banks managed to make hay within unstable conditions, largely due to actions taken by the Federal Reserve and experience in dealing with potential credit losses from 2008 and 2009.

Bank earnings - with the notable exception of Wells Fargo - have generally surprised to the upside, with Goldman Sachs and JP Morgan Chase managing to navigate the rough waters with steady hands.

A week that easily could have blunted the ongoing rally has instead turned the market wildly positive. Leave it to Wall Street and the bankers that run the investment capitol of the world to put the bears back into hibernation. With less than an hour before the opening bell, stock futures have exploded higher. Dow futures are up 540 points.

At the Close, Tuesday, July 14, 2020:
Dow: 26,642.59, +556.79 (+2.13%)
NASDAQ: 10,488.58, +97.78 (+0.94%)
S&P 500: 3,197.52, +42.30 (+1.34%)
NYSE: 12,204.21, +189.51 (+1.58%)