US Banks Forthcoming Earnings - The Short Perspective
U.S banks are of particular focus this week as J.P. Morgan kicked off fourth quarter earnings last Friday beating analyst expectations. We look at securities lending trends in those banks due to announce earnings this week including: Citigroup (NYSE:C), Northern Trust (NASDAQ:NTRS), State Street Corp (NYSE:STT), Bank of New York Mellon Corp (NYSE:BK), Goldman Sachs (NYSE:GS), Wells Fargo (NYSE:WFC), Morgan Stanley (NYSE:MS) and Bank of America (NYSE:BAC).
To set the scene, the media has widely reported moves by the Federal Reserve to kick off a new set of stress tests on 19 large financial institutions to determine whether plans for investor returns could be supported and implemented. The WSJ also noted that the leading U.S. banks almost doubled their collective earnings last quarter as billions of dollars of reserves set aside for bad loans were released which translated through to bolster net income.
Bloomberg reported that Citigroup is poised to report its first annual profit in three years, citing analyst estimates, after taking a $45 billion taxpayer bailout in 2008. One way of gauging investor sentiment towards the future profitability of Citigroup is to observe how much is in the hands of large, long term investors and whether this is changing. We are able to view a proxy for such daily institutional ownership by looking at the holdings of funds who lend their shares. We observe that funds who lend have consistently increased their holdings over the past year, with our proxy for institutional ownership having more than doubled from 2,500 million to 5.4 billion shares. We also see that the percentage of shares on loan has decreased at a similar rate over the year and now stands at 0.48% of total shares.
Northern Trust Corp is expected to announce earnings before market open on Wednesday. The stock has seen a fair rally in its share price over the last quarter. In securities lending, we have observed little change as the lendable quantity held steady at 53 million shares over the quarter. However, the quantity on loan over this period has almost doubled from 4 million to 6 million shares or 2.63% of total shares outstanding on loan.
Also due to update the market on Wednesday is State Street Corp, Bank of New York Mellon Corp (BNY Mellon) and Wells Fargo. State Street has seen holdings of funds who lend fairly static over the fourth quarter at around 135 million shares and the quantity on loan has remained flat at a low of 0.85 million shares or 0.17% of total shares.
Looking at BNY Mellon, the percentage of total shares outstanding on loan has doubled to 1.19% over the quarter. Yet, total holdings of funds who lend shares have seen a recent spike ahead of the dividend date from a flat 290 million to 302 million shares. Wells Fargo sees little activity in securities lending over the fourth quarter with funds who lend continuing to hold 1.28 billion shares and the percentage of total shares on loan remaining steady at around 0.15%.
Ahead of Goldman Sachs updating the market with earnings this week, the bank announced an overhaul of its reporting structure. Lendable quantity, our proxy for institutional ownership, has increased over the past quarter from 119 million to 128 million shares, whilst the percentage of total shares outstanding on loan has remained relatively static at 0.52%.
Morgan Stanley reports earnings on Thursday. The media reported that the bank has announced plans to spin off its proprietary trading desks by 2012 in steps to conform to financial regulatory reform. Lendable quantity has marginally increased over the quarter by 1 million shares to 320 million total shares, whilst the percentage of total shares outstanding on loan has doubled to 0.52%. Bank of America will report results on Friday and there has been little change in securities lending activity over the quarter. Holdings of funds who lend has remained fairly flat at 2.2 billion and the percentage of total shares outstanding on loan is broadly unchanged at 0.14%.
