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This week, starting April 18th, has earnings season in full swing - with big names in finance such as Charles Schwab (SCHW), Bank of America (BAC), and Blackstone (BX) all set to release their Q1 earnings figures. Earnings season is a vital time for traders, as it can significantly affect stock prices and investment decisions. It provides a snapshot of a company's performance and can signal changes in market trends. However, particularly in the wake of SVB’s collapse, positive earnings figures for financial institutions and services could bolster market sentiment around the sector and will therefore be worth paying attention to. In this article we will unpack recent fallout for financial institutions as well as some of the major players in the sector due to release earnings next week. If significant players post earnings performance surprises it could have significant implications for the financial industry and, ultimately the market as a whole. 

Please note that this article is purely informative and does not constitute as trading advice in any way. Traders are highly encouraged to conduct their own research before making financial decisions.  

 

The SVB Fallout 

The failure of Silicon Valley Bank is significant as it is the largest bank failure since the 2008 financial crisis, with the exception of Washington Mutual. The bank was located in Silicon Valley, California, a hub for tech startups, resulting in a concentration of deposits from a single sector. With the onset of rising inflation rates and other factors, many of these companies struggled to secure additional financing from venture capital and other sources, leading them to withdraw their deposits from the bank. This caused a run on the bank, where numerous companies sought to withdraw all their money at once. However, the bank had invested the deposits to generate returns, leaving them short of cash to meet these sudden withdrawal demands. 

The reason this is so significant is because banking failures are historically started by a single collapse, which causes other financial firms to take hits as the other dominos begin to fall. 

 

Charles Schwab 

Charles Schwab saw it’s stock valuation plummet over 30% and has still been trending downwards. The company started as a traditional brokerage firm but evolved into a discount brokerage firm in the 1970s, offering lower commission fees than traditional brokers. Today, Charles Schwab is one of the largest investment brokerage firms in the United States and offers a range of services, including brokerage, banking, wealth management, and financial advisory services; all factors that make the Schwab loss in valuation potentially scary for investors in the financial sector overall. In terms of earnings, analyst consensus for Charles Schwab (SCHW) seems to forecast stronger earnings and revenue. The company does not have a strong history of earnings surprises, but even moderate results may bolster some valuation recovery from the hit taken as a result of the SVB collapse.   

 

Bank of America  

Bank of America was one of the hardest hit by the SVB collapse with a loss of over 22bn Dollars but is having some small resurgence in valuation already. Bank of America (BAC), the second-largest bank in the United States in terms of assets, is expected to report a flattening in earnings growth for the first quarter of this year, compared to the same period last year as a result. The bank's performance has been impacted by recessionary fears, a banking crisis, and a slowdown in lending. Despite these challenges, Bank of America, along with many other large banks in the country, experienced a surge in deposits during the crisis as customers sought safety. For instance, in the days following the collapse of Silicon Valley Bank, Bank of America saw deposit inflows of $15 billion. Once again, investors will be paying attention to this release as a positive earnings surprise from Bank of America would be likely to be beneficial for the financial sector confidence overall. 

 
Blackstone  

Finally, BX will be the last financial sector earnings release of the week, meaning it could set the tone either way for market sentiment at least in the short term. Blackstone did not see much fallout as a result of the SVB fallout and, while the bank was in the initial stages of collapse Blackstone was one of the vultures circling the sky looking to pick up assets from its braying and wounded body. Blackstone had agreed to provide financial support for Valley National Bancorp's bid for Silicon Valley Bank in March. However, this deal did not come to fruition. Instead of competing for Silicon Valley Bank assets directly, Blackstone supported a regional bank, which is the type of buyer preferred by regulatory watchdogs. According to sources familiar with the matter, senior Blackstone executives debated the partnership, expressing concerns about public perception and regulatory burdens. This partnership has not been reported before. 
 
Traders will be presumably looking for Blackstone to remain as a shining beacon of resilience for the sector. If there is a significant enough positive earnings surprise, which there is every possibility to be, it will set the tone nicely for financial traders in the coming quarter.  

 

Conclusion 

All in all, an exciting week for earnings with the likes of Netflix, Tesla, IBM and AT&T also releasing. However, as stated above, it will be interesting to see how financial sector earnings are developing, hopefully easing the recessionary pressures we have had looming for some months now. Once again, none of the above constitutes as investment advice and traders should always conduct their own research before making financial decisions.  

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