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The Zacks Analyst Blog Highlights: JPMorgan, Citigroup, Bank of America and Wells Fargo
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For Immediate Release
Chicago, IL – July 30, 2020 – 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 (JPM - Free Report) , Citigroup (C - Free Report) , Bank of America (BAC - Free Report) and Wells Fargo (WFC - Free Report) .
Here are highlights from Wednesday’s Analyst Blog:
Big Banks' Q2 Scorecard and What to Expect Going Forward
The four big banks — JPMorgan, Citigroup, Bank of America and Wells Fargo — released second-quarter 2020 results earlier this month. In this article, we assess the performance of these Wall Street giants and then check out what management expects going forward amid the coronavirus pandemic and resultant economic slowdown.
Except Wells Fargo, the other three banks beat the Zacks Consensus Estimate. Wells Fargo incurred a loss for the first time since the 2008 financial crisis. The loss was largely attributed to a reserve build of $8.4 billion for the coronavirus outbreak-related crisis.
The common themes that favorably influenced these Zacks Rank #3 (Hold) big banks’ second-quarter results were strength in capital markets businesses and diversified revenue mix. Also, a decent loan balance, and initiatives by banks to upgrade technology for offering enhanced digitized services provided support.
However, near-zero interest rates put net interest income and net interest margin (NIM) under pressure. Also, a drastic surge in credit costs aimed to combat ambiguity surrounding economic recovery and dismal consumer banking operations were major undermining factors.
JPMorgan
Earnings & Revenues:The company reported second-quarter earnings of $1.38 per share, which topped the Zacks Consensus Estimate of $1.34. Earnings were primarily driven by higher mortgage banking fees, and impressive trading performance. However, it was below the year-ago figure of $2.59.
Total revenues of the New York-based largest U.S. bank were $33 billion, up 15% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $29.5 billion.
Margin: Interest rate spread was 1.90%, which contracted 27 basis points (bps).
Loan & Deposit Balance: As of Jun 30, 2020, loans totaled $978.5 billion, down 2% year over year. On the contrary, deposits jumped 27% year over year to $1.93 trillion as of the same date.
Credit Quality: Provision for credit losses was $10.5 billion, significantly up from $1.1 billion in the prior-year quarter. The rise was largely due to a huge reserve build amid a deteriorating operating backdrop and “increased uncertainty in the macroeconomic outlook” as a result of coronavirus impacts.
As of Jun 30, 2020, non-performing assets were $8.4 billion, which jumped 60% from Jun 30, 2019.
Guidance:The company anticipates net interest income (NII) to be around $56 billion for 2020, slightly up from the prior guidance of approximately $55.5 billion.
For third-quarter 2020, investment banking fees are expected to be down both sequentially and year over year, mainly due to seasonal decline and lower M&A announcements year to date. Further, capital markets activities are anticipated to revert to normal levels, as seen toward June-end.
Citigroup
Earnings & Revenues: The company’s earnings per share of 50 cents beat the Zacks Consensus Estimate of 47 cents. The outperformance was largely driven by strength in markets and investment banking businesses, along with a manageable expense level. However, earnings were significantly down from $1.83 per share in the prior year.
Total revenues of the New York-based big bank were $19.8 billion, up 5% year over year. The figure also surpassed the consensus estimate of $19.2 billion.
Margin: NIM declined 50 bps to 2.17%.
Loan & Deposit Balance:As of Jun 30, 2020, total loans marginally declined year over year to $685.3 billion. Deposits grew 18% from the prior-year quarter to $1.23 trillion.
Credit Quality:Citigroup’s costs of credit were up significantly year over year to $7.9 billion. The rise largely underlines elevated net credit losses of $2.2 billion, a credit reserve build of $5.6 billion, and other provisions of $94 million.
Also, total non-accrual assets jumped 58% year over year to $5.9 billion.
Guidance:For the third quarter and beyond, management expects the environment to be challenging and uncertain. For 2020, revenues are expected to be slightly flat to down year over year, with the decline in net interest revenues more or less offset by higher non-interest revenues.
Expenses are likely to be flat to down marginally for 2020.
Management expects a higher level of provision for loan losses in the upcoming quarters, given the current outlook, offset by the release of existing reserves.
Bank of America
Earnings & Revenues:The company’s earnings of 37 cents per share handily outpaced the Zacks Consensus Estimate of 28 cents. Earnings included the impact of a reserve build of $4 billion, mainly done to combat persistent economic slowdown. However, the figure plunged 50% year over year.
The Charlotte, NC-based bank’s total revenues of $22.3 billion were down 3% year over year but beat the Zacks Consensus Estimate of $21.8 billion.
Margin: Net interest yield was 1.87%, down 57 bps year over year.
Loan & Deposit Balance:As of Jun 30, 2020, net loans were $998.9 billion, up 4% year over year. Also, deposits surged 25% to $1.72 trillion as of the same date.
Credit Quality: Provision for credit losses surged significantly on a year-over-year basis to $5.1 billion. The rise was due to a reserve build, primarily done to combat dismal economic conditions, thanks to coronavirus-related economic concerns.
Further, net charge-offs (NCOs) jumped 29% from the year-ago quarter to $1.1 billion.
Guidance:For the third quarter, NII is anticipated to be adversely impacted by commercial loan paydowns and longer-term asset repricing. Beyond the third quarter, NII will likely depend on loan growth “and/or redeployment of deposits into higher yielding securities rather than cash.”
Additionally, effective third quarter, the bank will start accounting for merchant services separately and not through a joint venture. Further, additional revenues for merchant services are expected to be roughly $100 million a quarter, which will likely improve as the economy recovers.
Wells Fargo
Earnings & Revenues:The bank incurred a loss of 66 cents per share, wider than the Zacks Consensus Estimate of a loss of 16 cents.
Total revenues of this San Francisco-based bank were $17.8 billion. This was lower than the year-ago quarter’s $21.6 billion and lagged the consensus estimate of $18.3 billion.
Margin: NIM declined 57 bps year over year to 2.25%.
Loan & Deposit Balance: As of Jun 30, 2020, total loans were $935.2 billion, down 2% from the prior-year quarter. Total deposits were $1.41 trillion, up 9% from the prior-year quarter.
Credit Quality: Provision for credit losses was $9.6 billion compared with the prior-year quarter's $503 million.
Also, allowance for credit losses, including the allowance for unfunded commitments, totaled $20.4 billion as of Jun 30, 2020, up considerably year over year. Also, NCOs were $1.1 billion, rising 70.4% from the year-ago quarter.
Guidance:NII is anticipated to be $41-$42 billion for 2020, suggesting a year-over-year decline of 11-13%. The fall can be attributed to lower rate and the asset cap placed on Wells Fargo, which restricted its ability to expand the size of the balance sheet, as well as higher MBS premium amortization that is likely to persist through the remaining 2020.
Deposit costs are expected to continue to decline in the second half of 2020, and reach single-digit lows realized in 2015 and 2016.
Our Take
The overall performance and management guidance for the year seems to be based on gradual economic recovery. Nonetheless, the largest banks are still cautious about the same and warned the possibility of further escalation in loan losses, which could hurt financials.
Jamie Dimon, CEO of JPMorgan, in a statement said, “Despite some recent positive macroeconomic data and significant, decisive government action, we still face much uncertainty regarding the future path of the economy.”
Wells Fargo’s CEO Charlie Scharf said “Our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter.” Likewise, Bank of America CFO Paul Donofrio said “Significant credit card losses won't show up until 180 days past the end of (forbearance) programs. I would not expect to see significantly higher losses until 2021.”
With a spike in coronavirus cases following the reopening of coronavirus-induced lockdowns, several states and economies are shutting down again. Further, government-run assistance programs are gradually coming to a close. Thus, given these factors, along with low rates and the fact that the actual picture of economic slowdown is likely to emerge later this year or the next year, big banks are not expected to be out of woods anytime soon.
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This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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 http://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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The Zacks Analyst Blog Highlights: JPMorgan, Citigroup, Bank of America and Wells Fargo
For Immediate Release
Chicago, IL – July 30, 2020 – 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 (JPM - Free Report) , Citigroup (C - Free Report) , Bank of America (BAC - Free Report) and Wells Fargo (WFC - Free Report) .
Here are highlights from Wednesday’s Analyst Blog:
Big Banks' Q2 Scorecard and What to Expect Going Forward
The four big banks — JPMorgan, Citigroup, Bank of America and Wells Fargo — released second-quarter 2020 results earlier this month. In this article, we assess the performance of these Wall Street giants and then check out what management expects going forward amid the coronavirus pandemic and resultant economic slowdown.
Except Wells Fargo, the other three banks beat the Zacks Consensus Estimate. Wells Fargo incurred a loss for the first time since the 2008 financial crisis. The loss was largely attributed to a reserve build of $8.4 billion for the coronavirus outbreak-related crisis.
The common themes that favorably influenced these Zacks Rank #3 (Hold) big banks’ second-quarter results were strength in capital markets businesses and diversified revenue mix. Also, a decent loan balance, and initiatives by banks to upgrade technology for offering enhanced digitized services provided support.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, near-zero interest rates put net interest income and net interest margin (NIM) under pressure. Also, a drastic surge in credit costs aimed to combat ambiguity surrounding economic recovery and dismal consumer banking operations were major undermining factors.
JPMorgan
Earnings & Revenues:The company reported second-quarter earnings of $1.38 per share, which topped the Zacks Consensus Estimate of $1.34. Earnings were primarily driven by higher mortgage banking fees, and impressive trading performance. However, it was below the year-ago figure of $2.59.
Total revenues of the New York-based largest U.S. bank were $33 billion, up 15% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $29.5 billion.
Margin: Interest rate spread was 1.90%, which contracted 27 basis points (bps).
Loan & Deposit Balance: As of Jun 30, 2020, loans totaled $978.5 billion, down 2% year over year. On the contrary, deposits jumped 27% year over year to $1.93 trillion as of the same date.
Credit Quality: Provision for credit losses was $10.5 billion, significantly up from $1.1 billion in the prior-year quarter. The rise was largely due to a huge reserve build amid a deteriorating operating backdrop and “increased uncertainty in the macroeconomic outlook” as a result of coronavirus impacts.
As of Jun 30, 2020, non-performing assets were $8.4 billion, which jumped 60% from Jun 30, 2019.
Guidance:The company anticipates net interest income (NII) to be around $56 billion for 2020, slightly up from the prior guidance of approximately $55.5 billion.
For third-quarter 2020, investment banking fees are expected to be down both sequentially and year over year, mainly due to seasonal decline and lower M&A announcements year to date. Further, capital markets activities are anticipated to revert to normal levels, as seen toward June-end.
Citigroup
Earnings & Revenues: The company’s earnings per share of 50 cents beat the Zacks Consensus Estimate of 47 cents. The outperformance was largely driven by strength in markets and investment banking businesses, along with a manageable expense level. However, earnings were significantly down from $1.83 per share in the prior year.
Total revenues of the New York-based big bank were $19.8 billion, up 5% year over year. The figure also surpassed the consensus estimate of $19.2 billion.
Margin: NIM declined 50 bps to 2.17%.
Loan & Deposit Balance:As of Jun 30, 2020, total loans marginally declined year over year to $685.3 billion. Deposits grew 18% from the prior-year quarter to $1.23 trillion.
Credit Quality:Citigroup’s costs of credit were up significantly year over year to $7.9 billion. The rise largely underlines elevated net credit losses of $2.2 billion, a credit reserve build of $5.6 billion, and other provisions of $94 million.
Also, total non-accrual assets jumped 58% year over year to $5.9 billion.
Guidance:For the third quarter and beyond, management expects the environment to be challenging and uncertain. For 2020, revenues are expected to be slightly flat to down year over year, with the decline in net interest revenues more or less offset by higher non-interest revenues.
Expenses are likely to be flat to down marginally for 2020.
Management expects a higher level of provision for loan losses in the upcoming quarters, given the current outlook, offset by the release of existing reserves.
Bank of America
Earnings & Revenues:The company’s earnings of 37 cents per share handily outpaced the Zacks Consensus Estimate of 28 cents. Earnings included the impact of a reserve build of $4 billion, mainly done to combat persistent economic slowdown. However, the figure plunged 50% year over year.
The Charlotte, NC-based bank’s total revenues of $22.3 billion were down 3% year over year but beat the Zacks Consensus Estimate of $21.8 billion.
Margin: Net interest yield was 1.87%, down 57 bps year over year.
Loan & Deposit Balance:As of Jun 30, 2020, net loans were $998.9 billion, up 4% year over year. Also, deposits surged 25% to $1.72 trillion as of the same date.
Credit Quality: Provision for credit losses surged significantly on a year-over-year basis to $5.1 billion. The rise was due to a reserve build, primarily done to combat dismal economic conditions, thanks to coronavirus-related economic concerns.
Further, net charge-offs (NCOs) jumped 29% from the year-ago quarter to $1.1 billion.
Guidance:For the third quarter, NII is anticipated to be adversely impacted by commercial loan paydowns and longer-term asset repricing. Beyond the third quarter, NII will likely depend on loan growth “and/or redeployment of deposits into higher yielding securities rather than cash.”
Additionally, effective third quarter, the bank will start accounting for merchant services separately and not through a joint venture. Further, additional revenues for merchant services are expected to be roughly $100 million a quarter, which will likely improve as the economy recovers.
Wells Fargo
Earnings & Revenues:The bank incurred a loss of 66 cents per share, wider than the Zacks Consensus Estimate of a loss of 16 cents.
Total revenues of this San Francisco-based bank were $17.8 billion. This was lower than the year-ago quarter’s $21.6 billion and lagged the consensus estimate of $18.3 billion.
Margin: NIM declined 57 bps year over year to 2.25%.
Loan & Deposit Balance: As of Jun 30, 2020, total loans were $935.2 billion, down 2% from the prior-year quarter. Total deposits were $1.41 trillion, up 9% from the prior-year quarter.
Credit Quality: Provision for credit losses was $9.6 billion compared with the prior-year quarter's $503 million.
Also, allowance for credit losses, including the allowance for unfunded commitments, totaled $20.4 billion as of Jun 30, 2020, up considerably year over year. Also, NCOs were $1.1 billion, rising 70.4% from the year-ago quarter.
Guidance:NII is anticipated to be $41-$42 billion for 2020, suggesting a year-over-year decline of 11-13%. The fall can be attributed to lower rate and the asset cap placed on Wells Fargo, which restricted its ability to expand the size of the balance sheet, as well as higher MBS premium amortization that is likely to persist through the remaining 2020.
Deposit costs are expected to continue to decline in the second half of 2020, and reach single-digit lows realized in 2015 and 2016.
Our Take
The overall performance and management guidance for the year seems to be based on gradual economic recovery. Nonetheless, the largest banks are still cautious about the same and warned the possibility of further escalation in loan losses, which could hurt financials.
Jamie Dimon, CEO of JPMorgan, in a statement said, “Despite some recent positive macroeconomic data and significant, decisive government action, we still face much uncertainty regarding the future path of the economy.”
Wells Fargo’s CEO Charlie Scharf said “Our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter.” Likewise, Bank of America CFO Paul Donofrio said “Significant credit card losses won't show up until 180 days past the end of (forbearance) programs. I would not expect to see significantly higher losses until 2021.”
With a spike in coronavirus cases following the reopening of coronavirus-induced lockdowns, several states and economies are shutting down again. Further, government-run assistance programs are gradually coming to a close. Thus, given these factors, along with low rates and the fact that the actual picture of economic slowdown is likely to emerge later this year or the next year, big banks are not expected to be out of woods anytime soon.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained an impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>
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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 http://www.zacks.com/performancefor information about the performance numbers displayed in this press release.