During the past week, Bank of America, Citigroup, and JPMorgan Chase all reported actual EPS numbers for the fourth quarter below the expectations of analysts. Bank of America reported actual EPS of $0.25, compared to the mean EPS estimate of $0.32. Citigroup reported actual EPS of $0.06, compared to the mean EPS estimate of $0.10. JPMorgan Chase reported actual EPS of $1.19, compared to the mean EPS estimate of $1.31.
The last time all three companies reported actual EPS below the mean EPS estimate in the same quarter was Q4 2011.
What are the implications for earnings growth for the Financials sector with all three of these companies missing expectations? All three companies also reported year-over-year declines in EPS for Q4 2014 as well. As a result, it now appears the Financials sector will likely report a year-over-year decline in earnings for the third time in the past four quarters. The blended (combines actual results for companies that have reported and estimates for companies yet to report) growth rate for the Financials sector is -4.3%. In order for the sector to report flat (0%) earnings relative to last year, the remaining companies in the sector would need to beat estimates in aggregate by 6.9%. This percentage is above the 5-year average for the S&P 500 as a whole of 5.5%, and the more recent 1-year average for the S&P 500 of 4.2%.
As a result, it appears the Financials sector will report actual earnings below the expectations of analysts both at the start of the quarter and at the end of the quarter for the 4th time in the past four years. The two most recent quarters in which the Financials sector reported earnings below both estimates were Q3 2013 and Q4 2011. In Q3 2013, JPMorgan Chase reported actual EPS of -$0.17, which included a charge of $1.85 for legal expenses and reserves. This charge dramatically lowered the earnings for the sector. In Q4 2011, as previously noted, Bank of America, Citigroup and JPMorgan Chase all reported actual EPS below the expectations of analysts.