Bank earnings reports provide a key vantage point from which to understand the economy.   In the past few years, most banks have consistently grown earnings, and consistently exceeded  analyst estimates. However, analysts have had a difficult time predicting bank earnings in the time of coronavirus.

As Chris Kotowski of Oppenheimer wrote:

This earnings preview is the most difficult to write in our careers because there is simply no precedent

On the one hand, increased market volatility will drive higher trading revenue. On the other hand, banks will need to drastically increase their loan loss reserves as a result of the economic shutdown.  Additionally, there is heightened risk of risk management lapses that might cause surprises.  Keep in mind that banks are already challenged by low interest rates coming into this quarter. Continued record low interest rates will likely continue to drag on bank earnings. Investors will be closely watching for changes in management guidance. Granted, with so much uncertainty, its likely many management teams will not give any guidance at all. Against this backdrop of uncertainty, investors will need access to better trading and hedging tools, such as earnings derivatives.

Earnings Revisions

Company Report Date % of analysts revising earnings down % of analysts revising revenue down
First Horizon National Corp (FHN) 04/14/2020 33% 7%
JPMorgan Chase & Co (JPM) 04/14/2020 19% 22%
Wells Fargo & Co (WFC) 04/14/2020 8% 27%
Bank of America Corp(BAC) 04/15/2020 15% 23%
Charles Schwab Corp(SCHW) 04/15/2020 16% 21%
Citigroup Inc  ( C ) 04/15/2020 32% 24%
Goldman Sachs Group Inc (GS) 04/15/2020 21% 13%
Morgan Stanley (MS) 04/15/2020 25% 33%
PNC Financial Services Group Inc (PNC) 04/15/2020 48% 30%
U.S. Bancorp (USB) 04/15/2020 4% 9%
Bank of New York Mellon Corp(BK) 04/16/2020 17% 17%
KeyCorp (KEY) 04/16/2020 9% 41%
Western Alliance Bancorp(WAL) 04/16/2020 8% 25%
Regions Financial Corp (RF) 04/17/2020 28% 24%
State Street Corp (STT) 04/17/2020 39% 11%
M&T Bank Corp (MTB) 04/20/2020 47% 32%
Truist Financial Corp (TFC) 04/20/2020 18% 36%
Comerica Inc (CMA) 04/21/2020 13% 13%
Northern Trust Corp (NTRS) 04/21/2020 53% 18%
Huntington Bancshares Inc(HBAN) 04/23/2020 10% 33%
Capital One Financial Corp(COF) 04/23/2020 41% 5%
People’s United Financial Inc (PBCT) 04/23/2020 50% 33%
SVB Financial Group (SIVB) 04/23/2020 42% 21%
Synovus Financial Corp (SNV) 04/24/2020 18% 53%
New York Community Bancorp Inc (NYCB) 04/29/2020 0% 0%

Two of the largest components in the Select Bank Revenue and Earnings Indexes report on Tuesday before the market opens: JP Morgan and Wells Fargo. These reports will set the tone for the next couple weeks. Without a doubt any surprise will drive heightened stock market volatility. The big question for long term investors is how long will the drawdown last?  If this quarters earnings proves to be a blip, it won’t impact the long run value of solid banking franchises.  However, several quarters of muted economic activity could cause permanent damage to investor portfolios.

Select Bank Revenue and Earnings Indexes

The BLX Select Bank Revenue and Select Bank Earnings Indexes allow investors to invest directly in bank earnings, separating out the risk of contracting or expanding multiples.  BLX Global Indexes price based on official  10-Q filings. Banks will follow up these earnings announcements with full financial statements in the 10-Q, the index levels will reprice, along with and any options products using them as a reference asset.  Click here to learn more about earnings power indexing, and how it can be used to hedge risk and amplify returns.