Key Takeaway From US Banks Earnings
What we learnt from US banks' earnings
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Banks earnings are closely watched because banks have customers across all sectors of the economy. They see the economic activity of much of the country and therefore have good idea of the health of the economy or the size of the economic shock that is coming in this current climate.
Going into these earnings we knew it wasn’t going to be pretty. However, banks earnings were going to help to try to build a picture as to the extent of the economic catastrophe that the coronvirus outbreak and imposed lock down was causing.
So how did they fair?
The big banks all reported a big drop in earnings in the three months to 31st March JP Morgan, Wells Fargo and BoA reported a 45% decline in earnings, whilst Citigroup and Goldman reported 46% fall in Q1 income as the lenders set aside huge sums in case consumers or businesses are forced to default on their loans due to the coronvirus lock down. The figure paint a grim picture of Q2.
Key Takeaways:
1. Huge charges for loan losses
Bank of America, Citigroup and Goldman Sachs took a total of $12.8 billion of charges in the first quarter for loan losses and warned that there could be more to come. The sobering figures raised concerns over the tolls that the covid-19 outbreak could have on the financial sector as a whole.
2. Strong trading results
Surging loan losses at the banks were cushioned by dramatically higher trading revenues, as covid-19 volatility triggered a surge in client activity, in addition to a sharp increase in deposits.
3. Lower net interest income
Going forward lower interest rates will weigh on banks net interest income, one of the main drivers of a lenders revenue.
Figures
JP Morgan Credit provision of $6.8 billion. So far forbearance numbers small but expected to jump whilst the bank also recorded record trading revenue. EPS $0.78 on revenue of $29.07 billion. Shares rose.
Wells Fargo $3.1 billion increase in loan reserves as braces for sharp rise in credit loan defaults. NII fell by almost 90% EPS $0.01 on revenue of $19.28. Shares dropped 4%.
BoA set aside 43.6 billion for loan loss reserves because of covid-19. EPS $0.40 vs $0.46 exp. On revenue of $22.8 billion. Trading results exceeded expectations by +$500 million. Shares dropped 6.5%.
Citigroup provisions to the tune of $7 billion, $4.9 billion for future bad loans and $2.1 for losses this period. NII -46% from previous year, higher fixed income trading revenue jumped +39% boosting total revenue which was up +12%. EPS $1.05 on revenue $20.7 billion
Goldman Sachs took $937 million for provisions in Q1, mostly related to investment banking clients. EPS $3.11 vs $3.35 (exp) on revenue $8.74 billion vs. $7.92 exp. The figures show that GS could be more insulated to the turmoil than peers. Shares gained 3%.
And the share price?
The share prices saw a mixed reaction. Those banks with more exposure to trading saw share price rise as the increase in trading revenue offset the huge charges for bad loans.
President Trump unveiling plans for the gradual reopening on the US economy has boosted risk sentiment lifting banking shares higher. The sooner the economy can fire back up the quicker banks results and the broader economy will improve
Banks earnings are closely watched because banks have customers across all sectors of the economy. They see the economic activity of much of the country and therefore have good idea of the health of the economy or the size of the economic shock that is coming in this current climate.
Going into these earnings we knew it wasn’t going to be pretty. However, banks earnings were going to help to try to build a picture as to the extent of the economic catastrophe that the coronvirus outbreak and imposed lock down was causing.
So how did they fair?
The big banks all reported a big drop in earnings in the three months to 31st March JP Morgan, Wells Fargo and BoA reported a 45% decline in earnings, whilst Citigroup and Goldman reported 46% fall in Q1 income as the lenders set aside huge sums in case consumers or businesses are forced to default on their loans due to the coronvirus lock down. The figure paint a grim picture of Q2.
Key Takeaways:
1. Huge charges for loan losses
Bank of America, Citigroup and Goldman Sachs took a total of $12.8 billion of charges in the first quarter for loan losses and warned that there could be more to come. The sobering figures raised concerns over the tolls that the covid-19 outbreak could have on the financial sector as a whole.
2. Strong trading results
Surging loan losses at the banks were cushioned by dramatically higher trading revenues, as covid-19 volatility triggered a surge in client activity, in addition to a sharp increase in deposits.
3. Lower net interest income
Going forward lower interest rates will weigh on banks net interest income, one of the main drivers of a lenders revenue.
Figures
JP Morgan Credit provision of $6.8 billion. So far forbearance numbers small but expected to jump whilst the bank also recorded record trading revenue. EPS $0.78 on revenue of $29.07 billion. Shares rose.
Wells Fargo $3.1 billion increase in loan reserves as braces for sharp rise in credit loan defaults. NII fell by almost 90% EPS $0.01 on revenue of $19.28. Shares dropped 4%.
BoA set aside 43.6 billion for loan loss reserves because of covid-19. EPS $0.40 vs $0.46 exp. On revenue of $22.8 billion. Trading results exceeded expectations by +$500 million. Shares dropped 6.5%.
Citigroup provisions to the tune of $7 billion, $4.9 billion for future bad loans and $2.1 for losses this period. NII -46% from previous year, higher fixed income trading revenue jumped +39% boosting total revenue which was up +12%. EPS $1.05 on revenue $20.7 billion
Goldman Sachs took $937 million for provisions in Q1, mostly related to investment banking clients. EPS $3.11 vs $3.35 (exp) on revenue $8.74 billion vs. $7.92 exp. The figures show that GS could be more insulated to the turmoil than peers. Shares gained 3%.
And the share price?
The share prices saw a mixed reaction. Those banks with more exposure to trading saw share price rise as the increase in trading revenue offset the huge charges for bad loans.
President Trump unveiling plans for the gradual reopening on the US economy has boosted risk sentiment lifting banking shares higher. The sooner the economy can fire back up the quicker banks results and the broader economy will improve
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