As we discussed last week, the table has been set (again) for positive earnings surprises. And we’ll see more this week, as Q1 earnings kick into gear.
The tone has already been set, with the big surprises reported on Friday from two of the four biggest banks. The market was looking for earnings contraction from JP Morgan and Wells Fargo. Instead, we had 7% yoy growth from JPM, and 12% yoy growth from Wells.
Today we heard from Citi, the third largest bank in the country. Citi beat expectations with 11% earnings growth in the first quarter, compared to the same period a year ago. And tomorrow we’ll hear from Bank of America, the second largest bank in the country.
So far, Jeff Ubben has been spot on about the banks. Ubben is the founder of ValueAct Partners, one of the best activist investors in the business over the past twenty years. Remember, back in January, as we were stepping through positive surprises in bank earnings from the fourth quarter, we talked about Ubben’s thoughts on banks. He has said that the U.S. banking system has the lowest risk profile “than any time in our investing lifetime.”
In our Billionaire’s Portfolio
, we followed him into Citigroup, the highest conviction position in his $16 billion portfolio. Citi is the cheapest of the four biggest U.S.-based global money center banks — still trading at a 30% discount to peak pre-crisis market value, despite being far better capitalized, better regulated and a more efficient business than it was in the pre-financial crisis days. With that, not coincidentally, as the banks have beaten expectations, Citi has been the best performing big bank year-to-date (up 29%).