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.
|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%|
|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.