The current US earnings season began with results from some of the largest banks in the world.
Increased levels of trade due to the market and a large number of IPOs contributed to healthy investment banking income.
Today we will take a closer look at factors affecting bank revenues, the third quarter results and finally we will introduce a Financial Services ETF worth considering:
Influencing Factors
Financial institutions, such as banks, provide customers with a variety of products and services. For commercial banks, loans they provide to customers make up the bulk of their assets, while deposits, which are available to their depositors or creditors upon request, make up a large portion of their liabilities. Loans provided by banks generally have a longer term to maturity than their liabilities. Therefore, bank income is greater when they lend money at a rate higher than the interest they pay to savers. Evaluating a bank's earnings, we can arrive at net interest income by subtracting the interest paid from the total interest earned.
Still, many banks use a hybrid model, which means that they generate part of their income from activities that do not bear interest. These revenues include fees for capital market activities, investments and brokerage services, trading profits and losses, bank charges, credit card charges, mortgage-related activities and mobile banking charges.
As a result, the income of a bank is divided into net interest income and non-interest income. Different banks have different exposures to these industries, affecting their earnings, as highlighted in last week's reports from banks in the United States.
Q3 Bank Profit Results
Results from (NYSE :), (NYSE 🙂 (NYSE: ) and (NYSE 🙂 demonstrated robust securities trading and capital markets operations, particularly in fixed income and asset management.
On the other hand, the numbers of (NYSE 🙂 fell short of expectations. The flow negatively impacted the bank's interest income.
Charlie Scharf, CEO of Wells Fargo, explained:
“Our third quarter results reflect the impact of aggressive monetary and fiscal stimulus on the US economy. Strong mortgage fees, higher stock markets and falling sequential write-downs positively impacted our results, while historically low interest rates contributed to net costs remained high. "
Finally, the statistics of (NYSE 🙂 which is big in both commercial and investment banking, were somewhere in between. CEO Brian Moynihan said:
"As the economy recovered, we generated nearly $ 5 billion in revenue this quarter, reflecting the diversity of our business model."
Today we will take a closer look at the various factors that influence bank performance and introduce a Financial Services ETF worth considering:
iShares Global Financials ETF
Current price $ 54.74
For 52 weeks, range $ 40.26 – 69.57
Dividend Yield: 3.03%
Expense ratio: 0.46%
The iShares Global Financials ETF (NYSE 🙂 provides exposure to companies that provide financial services to commercial and private clients, such as banks, investment funds and insurance companies. The fund has been traded since 2001.
IXG, which has 191 holdings, tracks the S&P Global 1200 Financials Sector Index. The ETF's top ten names comprise approximately 28% of its net assets, which amount to $ 245 million.
Berkshire Hathaway (NYSE 🙂 (NYSE :), JPMorgan Chase and Bank of America top the list of holdings. Almost half of the companies in the fund are based in the US. Next in line are Canada (7.78%), the UK (5.41%), Australia (5.23%) and Japan (4.83%).
Since the beginning of the year, the fund is down about 20%. The investors encouraged by the latest earnings results who believe the worst economic impact of the pandemic is behind us might consider buying the dips.
Bottom Line
]
The state of the economy is the most important factor affecting a bank's earnings. The third quarter results of the top US banks do not ring many alarm bells and even with the uncertainties associated with the upcoming US election, the financial stimulus package and the implications of the pandemic, the US consumer could ultimately fare better than initially stated earlier. the US was feared. year.
Investors interested in banks with a regional flair in the United States may also want to research another ETF, the SPDR® S&P Regional Banking ETF (NYSE 🙂 . The fund, which was first listed in 2006, has 126 holdings. Year-to-date, the KRE is down about 32%, flirting at $ 40. The dividend yield is 4.42%. Many of the banks in the fund trade below their book value. Opposite investors can discover value in the ETF.
In the coming months, we will continue our discussion of this important sector of the economy and discuss various metrics that investors might consider when analyzing bank stocks.
