Is It Pointless to Look at Big Banks’ Q1 Earnings?

As the biggest banks in the US line up to announce their first-quarter results, investors should focus on their capital strength and liquidity. Notably, the earnings are bound to decline. A strong capital position and liquidity will help the banks weather the current crisis. I expect a significant increase in the provisions, which will likely weigh on the banks’ profitability. Moreover, lower deposit spreads and competitive headwinds could continue to hurt the banks.

JPMorgan Chase (NYSE:JPM) will likely announce its first-quarter results before the markets open on April 14. Analysts expect the bank to post revenues of $29.7 billion, which reflects a marginal decline on a YoY (year-over-year) basis. Meanwhile, analysts expect JPMorgan Chase to post an adjusted EPS of $1.84—down about 31% YoY. Higher provisions will likely drag the bank’s first-quarter earnings down.

Analysts expect Citigroup (NYSE:C), which will likely announce its first-quarter results on April 15, to post revenues of about $19 billion in the first quarter. The consensus estimate indicates growth of about 2.5% YoY. Citigroup’s top line will likely benefit from growth in loans and deposits. However, increased provisions for credit losses and a lower spread will likely drag the bank’s earnings down. Analysts expect Citigroup to post an adjusted EPS of $1.46 in the first quarter, which implies a decline of about 22% YoY.

Analysts expect Bank of America (NYSE:BAC) to post revenues of $22.9 billion, which reflects a YoY decline of about 1%. Meanwhile, the consensus estimate indicates a YoY decline of about 35% in the bank’s bottom line to $0.46.

For Goldman Sachs (NYSE:GS), analysts expect revenues of $7.9 billion for the first quarter, which implies a YoY decline of about 10%. Meanwhile, analysts expect the bank to post earnings of $3.36—down more than 40%.

Wells Fargo’s (NYSE:WFC) revenues will likely decline by 10% in the first quarter. The bank’s bottom line will likely crash by more than 68% YoY to $0.33.

Analysts expect Morgan Stanley’s revenue to fall by about 4% in revenues. Notably, the consensus estimate indicates a drop of 18% in the bank’s bottom line.

Shares of Citigroup, JPMorgan Chase, and Bank of America outperformed the broader markets by a significant margin in 2019. In 2020, most of the banks have lost a considerable portion of their market cap (despite the recent recovery) due to COVID-19.

I think that a tough operating environment, weak economic outlook, increased unemployment rate, and low-interest rates will continue to challenge these banks in the near term. I expect bank stocks to trade range-bound until the economy shows signs of recovery and volumes pick up the pace.