Just when you thought the banking crisis was over — you'd better brace for an onslaught of big drops in bank profit. Hopefully you aren't caught flat-footed.
Analysts are predicting massive 30% or greater declines of profit among 10 stocks in the SPDR S&P Bank ETF, including First Republic Bank, Live Oak Bancshares and Walker & Dunlop, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. And don't assume banks' profit as a group is destined to fall. On the contrary, profit of the nearly 100 banks in the ETF are expected to rise 11.8% on average. That makes the banks with earnings in free fall all the more concerning.
And the fears of big drops in some banks' profit could soon become a reality. Many big banks this week kick off the all-important first-quarter earnings reporting season, which gives investors a preview of what 2023 looks like. "Earnings season, will banks spoil the party?" said Bespoke Investment Group.
S&P 500 Financial Profits To Rise
It's going to be a horrible first-quarter for some outlier banks. But overall, financials are having a decent time.
The financial companies in the S&P 500, which includes insurers and other financials not just banks, are expected to put up 9.1% revenue growth in the first quarter, says John Butters of FactSet. That's remarkably higher than the S&P 500's expected 1.8% top-line growth. It's also the highest revenue growth among any of the 11 sectors in the S&P 500.
And financial sector profits aren't looking bad, either. Financial companies are expected to make 2.4% more in the first quarter of 2023 than they did in the same period a year ago, Butters says. That ranks fourth in terms of growth among the S&P 500 sectors. It's also much better than the S&P 500's expected 6.8% drop in profit.
But that makes it all the more important to spot the banks that are going the other way.
Looking At The Hardest Hit Banks
If you want to know which bank's profits are hitting the skids, look to San Francisco's First Republic Bank.
Analysts think the bank's adjusted profit per share will sag nearly 74% to just 53 cents a share in the first quarter. That's the largest drop-off in expected profit among all the banks in the SPDR S&P Bank ETF. And that's a jolt of reality for investors to deal with. Keep in mind the bank's adjusted profit per share rose 7.4% in 2022. Now, investors are looking at the strong possibility the company will lose nearly $30 million, or 0.46 a share, this year instead.
It's not a complete surprise to investors. Following the implosion of Silicon Valley Bank, shares of First Republic Bank are down 74% this year. And First Republic Bank shares some of the traits of Silicon Valley Bank. The bank is seen reporting on April 24.
North Carolina's Live Oak is another bank analysts suspect will see a huge drop in profit when it reports on April 21. Analysts think the company's bottom line will shrink by 54% in the first quarter. That might be a bit more of a shock, as shares are down less than 20% this year. And yet another bank looking at a big fall off in quarterly profit is Bethesda, Md.-based commercial lender Walker & Dunlop. Analysts think its profit will fall more than 53% in the first quarter. Shares are off 8.2% this year. The company reports results on May 5.
Do big drops in earnings threaten these banks' survival? Not at all. And its very possible analysts are wrong and actual results will end up better than feared. But when you're seeing such onerous forecasts, it's better to know ahead of time rather than find out afterward.
Big Bank Profit Drops
Analysts' largest expected drops in first-quarter profit among the SPDR S&P Bank ETF
|Name||Ticker||First-quarter earnings % ch. (estimate)||Year-to-date % ch.|
|First Republic Bank||-73.6%||-88.4%|
|Live Oak Bancshares||-54.3%||-19.6%|
|Walker & Dunlop||-53.3%||-8.2%|
|PennyMac Financial Services||-34.2%||4.9%|
|New York Community Bancorp||-31.8%||2.2%|
|Sandy Spring Bancorp||-30.7%||-28.5%|
Sources: S&P Global Market Intelligence, IBD, SPDR S&P Bank
Follow Matt Krantz on Twitter @mattkrantz