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The Zacks Analyst Blog Highlights: JPMorgan, Bank of America, Citigroup, Wells Fargo and Truist Financial
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For Immediate Release
Chicago, IL – January 20, 2021 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: JPMorgan Chase & Co. (JPM - Free Report) , Bank of America Corporation (BAC - Free Report) , Citigroup Inc. (C - Free Report) , Wells Fargo & Company (WFC - Free Report) and Truist Financial Corporation (TFC - Free Report) .
Here are highlights from Tuesday’s Analyst Blog:
4 Key Themes to Dominate Major U.S. Banking in 2021
Major U.S. banks had an eventful 2020. The coronavirus pandemic hit banks hard as business activities came to a grinding halt, the Federal Reserve cut interest rates to near-zero and there was hardly any appetite for commercial and consumer loans. Despite these odds, banks showed incredible resiliency by focusing more on fee income sources of revenues amid a tough operating backdrop.
Here are four primary things to expect from major banks this year:
1. More Reserve Releases
As the pandemic hit in mid-March, major banks set aside tens of billions of dollars for future potential loan losses. This significantly hurt their profits.
While the initial stimulus package somewhat helped in containing delinquencies, banks modeled for no second round of stimulus. Now already there is the second one and President-elect Joe Biden has also unveiled a relief package worth up to $1.9 trillion.
More stimulus will likely mean fewer losses for the banking sector, and if there is a faster-than-expected economic recovery, other losses that had been taken into consideration for reserve calculations may not be incurred. Thus, this would allow major banks, including JPMorgan and Bank of America, to release more reserves (which will probably be billions of dollars) back into the income statement and thereby boost earnings.
It's noteworthy that JPMorgan and Citigroup began this process last year itself, though on a smaller scale.
2. Share Buybacks & Dividend Hike
Since mid-March 2020, major banks had paused share repurchases – first voluntarily and then getting conditional approvals from the Fed only for paying dividends and not buying back shares. Banks were barred from increasing dividend payouts. The firms could maintain dividends at the same level only if they earned sufficient profits. Therefore, Wells Fargo had to slash its quarterly dividend by 80%.
Nonetheless, following "the second round" of stress tests in December 2020, the Fed eased capital distribution limits. Major banks can now repurchase shares and maintain dividend payouts. Yet, the total distribution will be based on income earned over the past year. Following this, several major banks, including JPMorgan and Wells Fargo, have already announced their buyback plans for 2021.
Further, if coronavirus vaccines prove effective and economic recovery happens quickly, the Fed might do away with all restriction on capital distributions. Thus, major banks are also likely to increase their quarterly dividends.
3. Lower Revenues, Rise in Profitability
As things stand today, it is expected that major banks are likely to witness lower revenues this year compared with 2020. This is likely to be mainly due to fall in net interest income, given the ultra-low rates and soft loan demand (at least in the first half of 2021). Although banks' fee income sources – trading, investment banking, mortgage and card fees – are expected to remain strong, these are likely to normalize a bit in 2021 after a stellar performance last year.
Despite a decline in top line, major banks' profits are expected to improve largely driven by potential reserve releases, share buybacks and better loan demand in the later part of the year.
4. Business Restructuring
After a pandemic hit, major banks began re-evaluating their business structure to improve operating efficiency. The primary aim is to simplify operations and do away with non-core, unprofitable ones. Wells Fargo is just doing the same on a bigger scale, while Truist Financial is taking similar steps as it integrates businesses following the merger between BB&T and SunTrust.
Further, with sufficient liquidity in hand, banks plan to expand through strategic buyouts. Even the biggest U.S. bank – JPMorgan – is not averse to expanding inorganically. Despite being too big to be allowed to acquire another bank, there are no such restrictions on expanding other businesses via this route. Last month, at an investors' conference, the company's CEO Jamie Dimon signaled that the bank is considering buying asset management businesses or financial technology companies to accelerate growth.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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The Zacks Analyst Blog Highlights: JPMorgan, Bank of America, Citigroup, Wells Fargo and Truist Financial
For Immediate Release
Chicago, IL – January 20, 2021 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: JPMorgan Chase & Co. (JPM - Free Report) , Bank of America Corporation (BAC - Free Report) , Citigroup Inc. (C - Free Report) , Wells Fargo & Company (WFC - Free Report) and Truist Financial Corporation (TFC - Free Report) .
Here are highlights from Tuesday’s Analyst Blog:
4 Key Themes to Dominate Major U.S. Banking in 2021
Major U.S. banks had an eventful 2020. The coronavirus pandemic hit banks hard as business activities came to a grinding halt, the Federal Reserve cut interest rates to near-zero and there was hardly any appetite for commercial and consumer loans. Despite these odds, banks showed incredible resiliency by focusing more on fee income sources of revenues amid a tough operating backdrop.
Here are four primary things to expect from major banks this year:
1. More Reserve Releases
As the pandemic hit in mid-March, major banks set aside tens of billions of dollars for future potential loan losses. This significantly hurt their profits.
While the initial stimulus package somewhat helped in containing delinquencies, banks modeled for no second round of stimulus. Now already there is the second one and President-elect Joe Biden has also unveiled a relief package worth up to $1.9 trillion.
More stimulus will likely mean fewer losses for the banking sector, and if there is a faster-than-expected economic recovery, other losses that had been taken into consideration for reserve calculations may not be incurred. Thus, this would allow major banks, including JPMorgan and Bank of America, to release more reserves (which will probably be billions of dollars) back into the income statement and thereby boost earnings.
It's noteworthy that JPMorgan and Citigroup began this process last year itself, though on a smaller scale.
2. Share Buybacks & Dividend Hike
Since mid-March 2020, major banks had paused share repurchases – first voluntarily and then getting conditional approvals from the Fed only for paying dividends and not buying back shares. Banks were barred from increasing dividend payouts. The firms could maintain dividends at the same level only if they earned sufficient profits. Therefore, Wells Fargo had to slash its quarterly dividend by 80%.
Nonetheless, following "the second round" of stress tests in December 2020, the Fed eased capital distribution limits. Major banks can now repurchase shares and maintain dividend payouts. Yet, the total distribution will be based on income earned over the past year. Following this, several major banks, including JPMorgan and Wells Fargo, have already announced their buyback plans for 2021.
Further, if coronavirus vaccines prove effective and economic recovery happens quickly, the Fed might do away with all restriction on capital distributions. Thus, major banks are also likely to increase their quarterly dividends.
3. Lower Revenues, Rise in Profitability
As things stand today, it is expected that major banks are likely to witness lower revenues this year compared with 2020. This is likely to be mainly due to fall in net interest income, given the ultra-low rates and soft loan demand (at least in the first half of 2021). Although banks' fee income sources – trading, investment banking, mortgage and card fees – are expected to remain strong, these are likely to normalize a bit in 2021 after a stellar performance last year.
Despite a decline in top line, major banks' profits are expected to improve largely driven by potential reserve releases, share buybacks and better loan demand in the later part of the year.
4. Business Restructuring
After a pandemic hit, major banks began re-evaluating their business structure to improve operating efficiency. The primary aim is to simplify operations and do away with non-core, unprofitable ones. Wells Fargo is just doing the same on a bigger scale, while Truist Financial is taking similar steps as it integrates businesses following the merger between BB&T and SunTrust.
Further, with sufficient liquidity in hand, banks plan to expand through strategic buyouts. Even the biggest U.S. bank – JPMorgan – is not averse to expanding inorganically. Despite being too big to be allowed to acquire another bank, there are no such restrictions on expanding other businesses via this route. Last month, at an investors' conference, the company's CEO Jamie Dimon signaled that the bank is considering buying asset management businesses or financial technology companies to accelerate growth.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.