JPMorgan (JPM) - Get Report., Wells Fargo (WFC) - Get Report, Citigroup (C) - Get Report and Bank of America (BAC) - Get Report all report earnings in the coming week. As the coronavirus decimates the economy, investors will have a look at the extent of the pain banks are feeling.
Earnings estimates for 2020 for banks have plummeted hard as the Coronavirus has wiped out corporate revenues, lowering credit ratings, which has likely lead to loan losses and declining values of bank assets. For some period of time, loan volumes took a hit. .And with falling interest rates, net interest margins have been pressured, although the Federal Reserve has ben able to keep short-term and long-term yields spread apart, a huge key for bank profits.
JPMorgan, Wells Fargo, Citi and Bank of America are underperforming the broader market, down 26%, 38%, 40% and 29% for the year, respectively. The S&P 500 is down 14% year-to-date.
Analysts at Goldman Sachs say that the earnings estimates for the year, which call for major contraction year-over-year, could fall 40% from forecasts coming into 2020. Goldman's Richard Ramsden said higher loan volumes spurred by the Fed's lending facilities won't nearly offset loan loss provisions.
"We could have actually, with some of the large-cap banks ,already hit the floor," said D.A. Davidson & Co. analyst David Konrad. "There could be 50% downside in this year's estimates, but if there is I doubt there will be downside in next year's estimates. We could have a loss situation this quarter, but you effectively already provided for losses over the next two years."
Konrad thinks banks will build their book values after the quarter as well, meaning that the total net value of their assets will grow. He indicated that investors are well aware that this trend will be negative for the quarter and may show signs of improvement going forward.
One of Konrad's favored picks for now: Citigroup. It's trading at a price below its current book value. In a healthy environment, which the market is starting to price in, banks trade at multiples of their book values.
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