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Bank Stock Roundup: Q1 Earnings Begins Amid Coronavirus Scare, BAC, JPM & WFC Miss

·6 min read

Amid the coronavirus concerns, most banks built huge reserves in first-quarter 2020 on anticipations of persisting impact on the economy. Therefore, on the rise in provisions to safeguard the apprehended losses in the coming quarters, most banks disappointed with respect to the bottom line in the reported quarter.

The Fed slashed interest rates to near zero this March, in order to shield the U.S. economy from the coronavirus-related mayhem. This substantially hurt the banks’ net interest margins and net interest income. Notably, low deposit costs have also been an offsetting factor for margins. However, escalation in loans and deposits on liquidity needs amid the crisis acted as tailwinds.

On the fee income front, major banks managed to get some relief on higher trading revenues resulting from strong client activities and an upsurge in market volatility. Further, a decent investment banking performance, aided by strong underwriting business, along with steady consumer banking, was on the upside.

However, advisory business was on the downside. In addition, decline in mortgage originations volume and servicing income strained mortgage banking revenues during the March-end quarter.  

Though legal expenses were manageable, an overall rise in non-interest expenses, due to high spending on technology and personnel, and other market development initiatives, was an undermining factor.



(Read: Bank Stock Roundup for the Week Ending Mar 6, 2020)

Important Earnings of the Week

1. Wells Fargo WFC came up with first-quarter 2020 earnings of 1 cent per share, including a reserve build of $3.1 billion and certain other items amid coronavirus scare. The Zacks Consensus Estimate for the same was pegged at 22 cents. Reduced net interest income on lower rates and a disappointing fee income negatively impacted the company’s results. Notably, lower mortgage banking revenues and reduced gains on trading activities were major drags. Provisions also soared on the coronavirus crisis during the reported quarter. However, lower non-interest expenses acted as a tailwind. Further, escalation in loans and deposits reflected a strong capital position.

2. Bank of America’s BAC first-quarter 2020 earnings of 40 cents per share missed the Zacks Consensus Estimate of 42 cents. This resulted from the reserve build of $3.6 billion for the coronavirus-related crisis. A lower interest-rate environment hurt BofA’s net interest income despite decent loan growth. Moreover, the company’s operating expenses rose moderately. BofA’s advisory fees declined. However, solid underwriting business supported investment banking. BofA reported robust trading numbers. Sales and trading revenues (excluding DVA) grew 22% from the prior-year period, driven by a 13% rise in fixed income trading and a 39% jump in equity trading income.

3. JPMorgan’s JPM first-quarter 2020 earnings came in at 78 cents per share, which missed the Zacks Consensus Estimate of $1.70, thanks to a substantial rise in provisionss due to coronavirus-related concerns. The company built a large reserve to tide over the economic slowdown. Lower interest rates drove mortgage production revenues (up 60%), while loan sales in Home Lending resulted in a decline in servicing fees (down 99%). This resulted in lower mortgage fees and related income. As expected, advisory fees declined. Conversely, both equity and debt underwriting fees improved, rising 25% and 15%, respectively, leading to 3% growth in investment banking fees. Also, fixed income markets revenues surged 34%, given strong client activity across products. Similarly, equity markets revenues grew 28% driven by higher revenues in derivatives.

4. Citigroup C delivered a positive earnings surprise of 19.1% in first-quarter 2020, backed by revenue strength. Its adjusted earnings per share of $1.06 for the quarter handily outpaced the Zacks Consensus Estimate of 89 cents. However, the figure came in lower than the year-ago quarter’s figure of $1.87 per share. Citigroup recorded higher revenues, riding on strong performance in the Institutional Clients Group segment. Increase in client activity owing to a rise in volatility led to higher revenues from equity markets (up 39%). Also, strength in rates and commodities drove fixed-income revenues (up 39%) during the reported quarter. Though corporate lending revenues disappointed on a more challenging environment, investment banking revenues were largely stable.

5. PNC Financial PNC reported first-quarter 2020 earnings per share of $1.95, surpassing the Zacks Consensus Estimate of $1.38 amid coronavirus concerns. The bottom line, however, reflected a 25.3% decline from the prior-year quarter’s reported figure. Higher revenues, driven by higher net interest income and escalating fee income, aided the company’s results. Further, expenses declined. However, the rise in provisions was a headwind. Moreover, a lower net interest margin was another concern.

6. U.S. Bancorp USB delivered first-quarter 2020 earnings per share of 72 cents, which surpassed the Zacks Consensus Estimate of 49 cents. However, the bottom line declined 28% from the prior-year quarter figure. Higher loan and deposit balances were tailwinds. Also, rise in fee income was recorded. However, a substantial rise in provisions, due to the coronavirus-related concerns, was a headwind. Additionally, escalating expenses and contraction of margin were the undermining factors.

Price Performance

Here is how the seven major stocks performed:
 

Company

Last Week

6 months

JPM

-15.0%

-25.8%

BAC

-13.8%

-28.2%

WFC

-19.0%

-44.7%

C

-14.5%

-40.9%

COF

-16.8%

-44.0%

USB

-16.5%

-40.7%

PNC

-13.1%

-34.8%



Over the last four trading sessions, Wells Fargo and Capital One Financial COF were the major losers, with their shares declining 19% and 16.8%, respectively. Also, shares of U.S. Bancorp and JPMorgan have declined 16.5% and 15%, respectively.

In the past six months, shares of Wells Fargo and Capital One Financial have plummeted 44.7% and 44%, respectively. In addition, shares of Citigroup have depreciated 40.9%.

What’s Next?

In the coming week, the focus will solely be on earnings releases. Some banks are scheduled to report first-quarter results in the next five trading days. Truist Financial Corporation TFC and M&T Bank Corporation MTB will report on Apr 20, Comerica Incorporated CMA and Northern Trust Corporation NTRS on Apr 21, while Bank OZK OZK, Huntington Bancshares Incorporated HBAN and Capital One Financial will release their quarterly numbers on Apr 23.

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JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
 
Comerica Incorporated (CMA) : Free Stock Analysis Report
 
U.S. Bancorp (USB) : Free Stock Analysis Report
 
M&T Bank Corporation (MTB) : Free Stock Analysis Report
 
Huntington Bancshares Incorporated (HBAN) : Free Stock Analysis Report
 
Bank of America Corporation (BAC) : Free Stock Analysis Report
 
Citigroup Inc. (C) : Free Stock Analysis Report
 
Capital One Financial Corporation (COF) : Free Stock Analysis Report
 
Northern Trust Corporation (NTRS) : Free Stock Analysis Report
 
The PNC Financial Services Group, Inc (PNC) : Free Stock Analysis Report
 
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Bank OZK (OZK) : Free Stock Analysis Report
 
Truist Financial Corporation (TFC) : Free Stock Analysis Report
 
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