Reports are out for second-quarter 2020 results, and as expected, they reflect the impact of COVID-19. Here are what top bankers say:
From CNBC, Jamie Dimon expects continued uncertainty, but believes Chase is on a healthy path:
- “Despite some recent positive macroeconomic data and significant, decisive government action, we still face much uncertainty regarding the future path of the economy,” CEO Jamie Dimon said in the release. “However, we are prepared for all eventualities as our fortress balance sheet allows us to remain a port in the storm.”
- Dimon said in May that the odds were “pretty good” that the economy would rebound in the second half of the year, driven by the reopening. But that scenario could be threatened by the recent progression of the coronavirus, which has already forced some states to reverse course and shutter businesses again
Chase’s retail bank saw a massive swing, delivering a $176 million loss, in contrast to year-over-year results where it generated more than $1 billion in profit a month. Trading functions helped deliver stronger than anticipated results at Chase this quarter.
Across the street, at 399 Park Avenue comes Citi, where trading also protected revenue. Reuters reports CEO Michael Corbat on an earnings call:
- “We are in a completely unpredictable environment… The pandemic has a grip on the economy, and it doesn’t seem likely to loosen until vaccines are widely available.”
- So far, Citi, the third-largest credit card issuer in the United States, has offered forbearance on 2 million credit card accounts representing 6% of balances, the bank said.
Similar to Chase, trading revenue saved the quarter:
- Bond trading revenues surged 68% and also helped offset rock-bottom interest rates that make it harder for banks to earn money on lending.
Wells, with no trading function, reported a more severe loss, according to CNBC.
- Wells Fargo on Tuesday posted its first quarterly loss since the Great Recession as the bank set aside $8.4 billion in loan loss reserves tied to the coronavirus pandemic.
- The bank had a net loss of $2.4 billion in the second quarter, or a loss of 66 cents a share, worse than the 20 cents a share loss expected by analysts surveyed by Refinitiv. Revenue of $17.8 billion was also weaker than analysts’ $18.4 billion estimates.
- The bank’s quarterly loss is a sharp reversal from the firm’s pre-coronavirus results: A year ago, the bank posted $6.2 billion in second-quarter profit.
- Shares of the bank plunged 8% in early trading.
Wells CEO was less optimistic than Citi and Chase.
- “We are extremely disappointed in both our second-quarter results and our intent to reduce our dividend,” CEO Charlie Scharf said in the release. “Our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter, which drove the $8.4 billion addition to our credit loss reserve in the second quarter.”
- One factor keeping bank stocks down: Low-interest rates have pressured net interest margin, a key measure of profitability in the banking sector. The industry’s loan books have also begun to shrink, driven in part by lower credit card usage and the fear of rising defaults
More numbers will come in later this week, but considering that two top banks relied on trading to save revenue, do not expect credit cards to bring in revenue, at least not at this time of the business cycle.
Right now, it is all about risk management in credit cards and consumer banking.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group