Bank earnings show a ‘tale of two cities’ — three analysts explain what that means for 2021

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Earnings season kicked off Friday as JPMorgan, Citigroup and Wells Fargo all reported their earnings. There is some optimism coming from the vaccine rollout and a possible economic turnaround. 

Experts weighed in on the varied outlooks for different banks.

Marty Mosby, director of bank advisory and strategic services at Vining Sparks, says to look forward to a turnaround from Wells Fargo and PNC despite higher value elsewhere.

“From a credit standpoint and survivability, these banks are well ahead of schedule for any recession we’ve had before. The other side of this is from a revenue standpoint. Fees have offset the weakness in net interest income that’s just been eroding throughout the year, and will continue to be headwind as we go into 2021… When we look at, again, going through the outlook of where we think this is going in 2021, is the higher value banks like we talk about with JPMorgan, those are not the places to be. You’re looking for, eventually, Wells Fargo’s turnaround, you’re looking for PNC, who announced today, and looking for what they’re being able to do with their acquisitions, so event-driven. And also things that don’t have the pressure that you have on the net interest margin and not going to have the credit, which are going to be regional banks, like Regions Financial, that we really liked last year and that carries into this year.”

Greg Branch, managing partner of Veritas Financial Group, gave credit to JPMorgan’s management but says we have more to see from Wells Fargo and Citigroup.

“I think you are seeing a tale of two cities here. JPMorgan was able to release 72 cents of reserves. Now, they had the wherewithal to do that because management acted very aggressively when not much was expected of the sector, but also because of their diversified position, using a lot of those unforeseen gains from capital markets, trading and investment banking. I think it’s still going to be a tale of two cities for the next few months. I think that investors will value and find safe harbor in those platforms that structurally are built to weather this, and that, from a management perspective, have made the right decisions. I don’t know if we can say that for the Wells Fargos and the Citis of the world, they have something to show us.”

Jim Cramer, host of CNBC’s “Mad Money,” sees consumer behavior affecting the banks.

“JPM, I’m just going to say, this was one of the greatest quarters that I have ever seen. And the stock was justifiably up. And then Citi reports, and people say ‘ahh.’ And then Wells Fargo reports, and Charlie Scharf, who runs Wells Fargo, is not a promoter, he’s an operator, and he told it like it is, which is he still is nowhere near where he wants to be, and that’s why that stock is brought down… People are not spending, they are saving, okay? It is unprecedented saving. So, I think that it actually hurt all these banks. The hunkering down is not a good thing for a bank. They need people to take a loan! … If you look at the numbers from these three banks, the people who have jobs are doing fabulously, and they’re not spending because there’s nothing to spend on!” 

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