What’s happening: The biggest US banks are scheduled to kickstart the second-quarter earnings season today.
What happened: The first-quarter earnings season is usually a key one for the markets. This year, however, the first quarter reflected only a few weeks of the coronavirus impact, with January and February proving to be solid months for major US banks.
Investors look forward to the second-quarter results, as these will reflect the full impact of the virus outbreak on the country’s banking sector. JPMorgan Chase & Co, Citigroup Inc. and Wells Fargo & Co. are set to report their earnings before the opening bell today.
What are the expectations: All three banks are expected to report a significant decline in quarterly earnings versus the same quarter last year, although there are hopes of JPMorgan Chase reporting some sequential growth.
- JPMorgan Chase’s earnings are expected to improve to $1.04 per share, from 78 cents per share reported in the first quarter this year. Revenue is projected at $30.29 billion.
- Citigroup is expected to report its quarterly sales and earnings at $19.11 billion and 28 cents per share, respectively.
- Wells Fargo is likely to report revenue of $18.40 billion and a loss of 20 cents per share, versus a profit of $1.30 per share in the same quarter last year.
Why it matters: The earnings reported by major banks is widely considered as a barometer for the economy, since these financial institutions conduct transactions with every segment of the industry.
Banks have recently been setting aside higher capital to cover defaults on loans as well as unforeseen business losses as they will earn much less from lending given the low interest rates.
Major banks may be able to earn from other aspects of their business, like equity and debt underwriting, and are far less vulnerable than regional players to default risk on various loans amid the pandemic.
Much to the relief of investors, most big US banks have fared well in the Federal Reserve’s latest stress tests and sensitivity analyses. In fact, Vice Chairman of Fed’s Board of Governors Randal Quarles had said in a statement, “The banking system has been a source of strength during this crisis…and the results of our sensitivity analyses show that our banks can remain strong in the face of even the harshest shocks.” Uncertainty remains, however, as banks are yet to submit their new capital plans to the central bank with some dividend restrictions.
How shares performed so far: JP Morgan Chase’s shares are trading mostly flat in the last three months, while Wells Fargo’s stock has tumbled more than 19% in the same period. Citigroup’s stock has been a top performer, gaining around 12% in the period.
What to watch: Although the banking sector is expected to report a decline in earnings for the second quarter, investors will be focusing on their near- and long-term outlooks and their plans post the pandemic era.