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Major Banks Provide Mixed Guidance for Q2 and Thereafter

Top executives from some of the major banks — Bank of America BAC, Wells Fargo WFC, JPMorgan JPM, Citigroup C and Goldman Sachs GS — attended virtual conferences last week and offered mixed guidance for second-quarter 2020 and the second half of the year.

Per BofA CEO, Brian Moynihan, the company’s trading desks continue to do well in the current quarter, though the pace is not the same as first-quarter 2020. The bank expects trading revenues for the second quarter to increase in “high single digits” or nearly 10% year over year.

He added “You’ve seen the volatility come down in the market, and so equities is down and FICC is up a lot.” In the first quarter, trading revenues jumped 22%, with support from both equity and fixed income sources.

BofA expects investment banking (IB) revenues to rise about 10% in the current quarter. Specifically, this Zacks Rank #3 (Hold) bank is benefiting from secondary share issues. However, M&As are expected to be down year over year. In the last reported quarter, IB revenues grew 7% driven by solid underwriting business.

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Further, talking about dividend payments, Moynihan noted that the company “earned twice our dividend in the toughest quarter we’ve had in many years” and has sufficient capital to continue supporting dividend payments.

With large European banks suspending capital deployments, it is to be noted that major U.S. banks are facing pressure to slash/suspend dividends to further enhance liquidity amid the coronavirus pandemic, after having already halted share buybacks.

For Wells Fargo, CEO Charlie Scharf noted that appropriate dividend payouts will be determined by “the timing and the pace of the recovery and the way we view our ability to improve our results.”

The company provided a grim outlook for the current quarter. It anticipates provisions to be “quite significant” as the operating backdrop has  worsened from March-end. Further, the bank is likely to record more than $500 million “of expenses this quarter that we didn't anticipate because of COVID.” He also noted that it “hasn’t been easy” for the bank to operate under an asset cap ordered by the Federal Reserve.

Similar to BofA, JPMorgan expects markets and IB revenues to rise in the second quarter, and credit reserves to increase again by an amount “roughly equivalent” to $7 billion it added in the first quarter in order to protect itself from a potential wave of loan defaults.

Likewise, Citigroup CEO, Mike Corbat pointed out that the company will continue to build reserves and that the second-quarter level is expected to be “a bit above where we were in terms of the first quarter.” Further, he noted that fixed income underwriting continues to be solid, while on the M&A side, deal closings have slowed down.

While Goldman Sachs didn’t provide any near-term guidance, its president John Waldron reiterated the medium- and long-term financial targets announced at the investor day in January despite economic slowdown on account of coronavirus-related mayhem.

Talking about the overall economy, all the top executives were of the opinion that recovery is likely to be fast. There has been a slight rise in consumer spending than that of March and April.

As the Fed is supporting the economy with all its might and banks have ample liquidity, the U.S. economy is likely to come out of the woods as early as the latter part of the year.

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