On Friday, Bank of America reported fourth-quarter 2010 earnings, after an adjustment of $0.04 a share, falling short of analysts' estimates by $0.14.
But BofA bucked the trend this week for the largest banks this week, said Raymond James equity analyst Anthony Polini. "In general, the banks we cover did better than expected," he said in a phone interview. "They had great results, and we couldn't be more pleased."
He pointed to Wells Fargo, for instance, which reported Q4 2010 EPS of $0.61 on Wednesday. After adjusting for unusual items, these earnings beat the Street by about $0.05, he said, thanks to strong mortgage-banking income. Plus, commercial and industrial loans grew 3%.
On Tuesday, Citigroup posted annual earnings of $10.6 billion, or $0.35 per share, while quarterly earnings came in at $1.3 billion, or $0.04 cents per share. "Technically, they missed profit estimates because of unusual circumstances," said Polini. "But I'm pleased with their credit quality, revenue growth, loan growth and assets sales."
He is likewise bullish on JPMorgan Chase, which reported a 47% boost in earnings for the fourth quarter of 2010 last Friday. "As with Wells Fargo, they had better-than-expected loan growth and revenues," Polini explained.
The analyst's "strong buy" recommendation on these four banks is based on valuation levels and his view that they are poised to benefit from "a slightly better economy and much better credit quality" and outperform the broader equity markets.
Overall, he expected the top 40 U.S. banks to produce earnings growth this year of 30%, with these four companies likely to do even better. "We should begin to see some increasing common stock dividends," Polini said.
Morningstar's Jim Sinegal, associate director of research, agreed that bank results "are improving in many areas."
"Credit quality is increasing and has stabilized with the economy," Sinegal said in a phone interview," and loan growth – for both consumers and businesses – has been a surprise."
