Want an Early Peek at Bank Profits? Get It From U.S. Government

Author: Jesse Hamilton and Ian Katz

jburks

There’s a hidden way to get detailed financial data on publicly traded U.S. banks days before the companies release their earnings. The information is accurate, free, and -- most important -- totally legal.

The source is the federal government, which publishes snapshots of banks’ financial pictures, known as call reports, on a hard-to-find website. Banks, sometimes days later, distribute similar information in earnings releases that are followed closely by investors, analysts and the media. On those occasions when call reports are published before earnings, savvy stock-pickers can glean useful information before other investors.

“This is a very unusual way to release earnings information,” said Jeffrey Burks, a University of Notre Dame accounting professor who co-wrote a study on the practice. “You have a regulatory agency quietly putting it up on their website with no advance warning.”

Most of the potentially market-moving information pertains to small and medium-sized banks. Larger firms such as Citigroup Inc. and JPMorgan Chase & Co. typically report earnings well before call reports are released. Still, the early release represents a rare discrepancy in a financial-reporting system that’s supposed to provide all investors with the same information at the same time.

Short Selling

The gap exists because U.S. bank regulators tried to make data available to the public more quickly, by setting up an online repository for the information in 2005. But few people know they can get that data before earnings reports by checking an obscure website run by a consortium of agencies that regulate banks and credit unions.

In one example cited by Burks, who authored the study with fellow Notre Dame professors Brad Badertscher and Peter Easton, investors who noticed a 2012 call report on BOK Financial Corp. would have been able to determine that its banking unit had $60.4 million of profits in the fourth quarter, indicating the company would fall short of the $75.2 million that analysts expected for the entire firm.

Read the entire story on the Bloomberg website.