Bank stocks fell last week, but estimates of bank earnings barely budged

Written by Bill Peters

Earnings watch: Wall Street remains quiet on bank earnings as companies scramble for the floor; Results due from GameStop, Nike for the week

Anna Fosino, founder and CEO of Eat Happy Kitchen in Santa Ynez, California, said she experienced the Silicon Valley bank meltdown this way: On the morning of March 10, she logged into the banking system there to set up bill payments. which was due on Monday. Then her husband told her that the media was talking about the bank having problems. About 15 to 20 minutes later, right as another breaking news alert about the bank collapse hit her inbox, the internet interface she was working on crashed.

The stampede has begun. She and her husband, who had several business accounts with the bank, wrote CPA and creditors for further information or leniency. She said the money for the company, which employs two employees and sells organically sourced sauces and seasonings, was within the limits of the FDIC’s coverage. But there were questions about the form of this protection.

“I was getting emails, automated emails, from Square and Shopify and Quickbooks—you name it,” she said. “Anytime anybody ever got an electronic transaction to or from me was writing to me saying your bank accounts are null and void. I was like, ‘Yeah, I know.'”

The stress from the collapse of SVB – and that of Signature Bank, the swing and support of First Republic Bank (FRC) and Credit Suisse Group AG – has rippled through markets and shocked small businesses on the high street.

But Wall Street analysts trying to predict quarterly earnings for companies – and whose estimates often drive stocks when they come in higher or lower – have been quieter on the overall financial industry earnings. At least for now.

Between March 8 and Wednesday, earnings-per-share expectations for the financial sector and companies that make up the S&P 500 generally fell, according to FactSet data.

For the full year over that time, earnings estimates for the financial sector fell 0.8%. For the S&P 500 as a whole, those estimates are down 0.09%.

Only three companies in the financial sector have seen FactSet overall – Charles Schwab Corp. (SCHW), KeyCorp (KEY), and Comerica Inc. (CMA) — Earnings per share estimates are down more than 1% over that time, accordingly. to FactSet.

“Analysts don’t appear to be making significant downgrades to other companies in the sector at this time,” John Butters, FactSet’s chief earnings analyst, said in an email Wednesday.

However, those estimates are likely to drop as the weeks progress, and there is plenty of room for fear elsewhere. Others noted that banks could still allocate more money to cover bad loans, as inflation and concerns about cracks in the banking industry threaten to create an even bigger cash crunch for shoppers and businesses.

“They will likely increase their reserves of loan losses, which will impact first-quarter earnings,” said Ed Yardeni, president and chief investment analyst at Yardeni Research. “They will likely provide an alert to analysts in the coming weeks before earnings season begins.”

Elsewhere, analysts said smaller banks could bear more financial fallout than any of their larger, troubled peers. UBS analysts noted Thursday that nearly half of the state’s loans came from outside the nation’s 25 largest banks. “It’s in this smaller group where deposit growth and costs can be a bigger challenge,” they said.

Goldman Sachs Research said in a blog post on Thursday that within smaller US banks, “tightening of lending standards among those institutions is expected to reduce economic growth this year.” A recent study also found that nearly 190 US banks are still vulnerable to similar issues that swamped SVB.

Vocino said it rolled out a discount on the items one day after an SVB failed attempt to bring in the cash as access to its money in the bank remained variable. Her customers are up, she said, and many of the products on the Eat Happy Kitchen website are sold out, as of Friday.

Vocino, who is also a voice-over artist, said the shift from SVB to her new banks was scheduled to take place on a Friday or Monday. Successfully withdrawing money from one bank – and waiting for the money to arrive at another – can take a few days, and so carries with it a hold of its own.

“Nobody wants to change banks,” she said. “It’s such a pain in–nobody wants to do that.”

Amid the flood of opinions about what the bank’s collapse meant in the tech world and the years of low interest rates that fueled its rise, she said there are other aspects of the bank’s collapse that are worth focusing on.

“I was watching CNBC,” she said. “And the focus is all on technology, and Silicon Valley crashes. And I’m like: Hey? There are all these other companies out there with this company.”

This week in earnings

Outside of tremors in the country’s banks, a quieter earnings reporting season will continue into next week. Only five S&P 500 companies, including one member of the Dow 30, will report quarterly results over the next week, according to FactSet.

Among them: results for Winnebago Industries Inc. (WGO), the manufacturer of recreational vehicles, will follow the results of rival Thor Industries Inc. (THO), as well as a slowdown in demand for recreational vehicles as higher interest rates and prices fuel enthusiasm for road trips when the pandemic brought the economy to a halt. Petco Health & Wellness Co. Inc. (WOOF) and Chewy Inc. (CHWY) also during the week, as price hikes test customers’ ability to spoil their pets.

Elsewhere, results from General Mills Corporation (GIS) could provide more clarity on the direction of stubbornly high food prices. Retail chains Express Inc. (EXPR) and Ollie’s Bargain Outlet Holdings Inc. (OLLI), as analysts try to gauge how much retailers need to lower prices to attract shoppers who are increasingly concerned about the economy.

Calls to put on your calendar

Nike and Foot Locker: Foot Locker Inc. and Nike Inc. , both of which in recent years have tried to rely less on each other for sales, reported results on Monday and Tuesday, respectively. But they will do so after demand for shoes and clothing declines, after more customers choose to save the money they have to pay for necessities, such as food and gas. Nike (NKE), in December, reported better-than-expected results. But Foot Locker (FL) has cut staff, scrapped a sportswear brand in Europe, and has undergone broader executive changes over the years.

numbers to watch

GameStop earnings: The video game chain GameStop Corp., the stock meme original, reports results on Tuesday. While big stock moves may come and go depending on the mood of meme traders, Wedbush analyst Michael Pachter, in a note Thursday, raised bigger concerns about the company.

“Short-term headwinds include disappointment in the holiday season, hardware challenges at Microsoft and Nintendo, the impact of layoffs, and a disappointing start to the non-fungible token market,” he said. “Long-term headwinds include potential liquidity challenges and changing player preferences, with increasing appetite for cloud, digital, mobile and subscription. We expect a significant cash drain through at least FY23, eventually forcing the company to issue more shares.”

Bill Peters

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03-19-23 1002ET

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