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.

What analysts expect for these 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.

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.