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Banks Issue Mixed Views for Q3, Revenues Likely to be Stellar

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On Monday, at the 2020 Barclays Global Financial Services Conference, top executives from some of the notable banks — Wells Fargo (WFC - Free Report) , Citigroup (C - Free Report) , Fifth Third (FITB - Free Report) and Huntington (HBAN - Free Report) — issued mixed guidance for the September-end quarter as well as for the current year.

Guidance Issued by Banks

At the conference, John Shrewsberry — chief financial officer (CFO) at Wells Fargo — lowered the net interest income (NII) guidance for this year on reduced loan demand. The company projects NII to be $40.5 billion, down from the previous guidance of $41-$42 billion. Moreover, the bank provided the third-quarter guidance for non-interest income.

Shrewsberry anticipates trust and investment fees to be stronger on positive markets, while card fees might escalate on improved debit and credit card spending. Further, the current-quarter deposit-related fees are expected to be higher as huge amount of deposit-related fees were waived during the June-end quarter. Also, with volume and margin on the production side to be in level with the prior quarter, the bank expects mortgage numbers to do well. Moreover, strong trading results are anticipated in the third quarter.

Notably, Wells Fargo stands out on higher deposit base among other banks, with growth of $100 billion in retail deposits.

At the same conference, Citigroup’s chief financial officer — Mark Mason — said the bank would be accelerating investments in infrastructure and controls with $1 billion in additional investments intended for this year.

For the July-September quarter, Mason predicts additional reserves though lower than the previous quarters, which is based on the prevailing macroeconomic concerns, including the sluggish pace of economic recovery. On the revenue front, overall revenues are expected to decline in the high single-digit range on a year-over-year basis. Particularly, fixed Income and equity revenues are likely to be up in the low double-digit range year over year, partly offset by low interest rates, reduced levels of consumer activity and subdued investment banking activities.

Mason continues to expect as stated during the June-end quarter earnings, the second half of the year will see persistent decline or pressure on net interest revenues, along with consumer and the ICG business.

On the consumer side, impact of lower rates and reduced levels of activity post the COVID-19 pressure might be experienced. On the ICG side, given the accrual businesses, the bank expects the impact of lower rates to be seen on its business during the ongoing quarter, including TTS franchise, Securities Services business, and Private Bank.

Therefore, during the September-end quarter, declines in net interest revenues and non-interest revenues are projected on a year-over-year basis with the normalization of investment banking activities. However, Mason anticipates reduced net interest revenues to be mostly mitigated by non-interest revenues.

Expenses are anticipated to be approximately flat to up slightly in the current quarter compared with the prior-year quarter.

Among other banks, per Fifth Third chief executive officer (CEO) Greg D. Carmichael, the bank is likely to record medium-term net interest margin (NIM) of around 3%, excluding PPP and impact of excess cash in this quarter. Furthermore, continued growth in cash position is likely to keep the NIM under pressure of more than 10 basis points as compared with the June-end quarter.

Apart from these, top executives of Huntington predicted at the conference that the third-quarter revenues will increase around 4%, backed by a 3-4% rise in net interest income with a slight NIM expansion of about 2-5 basis points, and modestly higher average earning assets. Also, fee income will likely go up 5% on elevated mortgage banking.

Further, the bank expects average loans to remain flat with the prior-quarter levels, while average deposits are anticipated to inch up 1% sequentially. Remarkably, commercial loans are expected to edge down 1%, while consumer loans will likely rise 2% on higher residential mortgage, indirect auto, and RV/Marine loans. On the expense side, management expects expenses to flare up 5%, while net charge-offs might remain elevated.

Conclusion

Banks are somewhat positive about their financial performance during the July-September period, with most anticipating top-line growth and slightly higher expenses amid the prevailing impact of the coronavirus crisis on the economy. Apart from this, as the Fed has supported the economy with all its might and banks have ample liquidity, the U.S. economy is likely to come out of the woods soon.

Among the above-mentioned stocks, Wells Fargo and Fifth Third currently carry a Zacks Rank #4 (Sell), while Citigroup and Huntington have a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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