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US earnings season: Coronavirus will test whether banks stand on solid foundations

Investors are anticipating the results that big banks are about to report during their earnings briefings this week. JPMorgan Chase and Wells Fargo reported earlier in the week, Citigroup, Bank of America and US Bancorp reporting on Wednesday, Bank of New York Mellon on Thursday and Citizens Bank on Friday.

Bank stocks have taken a dramatic dip since the start of this year as the coronavirus pandemic put an end to the longest economic expansion in US history. Struggling businesses across sectors have laid off millions of workers and tapped bank credit lines. Not even an unprecedented $2trn stimulus bill to respond to the coronavirus pandemic, with cash and assistance for citizens and businesses has been able to offset the severity of the economic impact.

Investors will be looking out for how banks in the US will respond to a toxic combination of problems sparked by the pandemic. Historically low interest rates combined with rocketing joblessness that has grown by more than 16 million over the last three weeks have affected what lenders can charge for loans and whether people have the cash to service existing debt.

US banks saw their stocks fall by 38% this year on the KBW Bank Index on fears of rising defaults, compared to the 16% decline in 2020 of firms on the S&P 500.

US earnings season: Coronavirus...

In anticipation for their first-quarter earnings reports this week investors will be looking at how banks are preparing for the expanding economic downturn. There is a lot of concern about the banking industry, given the impact of the economic collapse that is expected to result from the looming coronavirus pandemic.

The week ahead is crucial to US banks as they have taken the position to continue to pay cash dividends in a time of crisis. Goldman Sachs, Morgan Stanley, and Citigroup have said they will suspend their dividends at this time. JPMorgan Chase remains open to the possibility of suspending its dividend, but it would be dependent upon how severe an economic downturn resulted.

“Banks are about to live the stress test they have been practising for a decade,” Wells Fargo senior bank analyst Mike Mayo told Bloomberg on 6 April. “And if successful, this could justify a rerating higher. But first it’s earnings hell. No large bank is immune to the negative impact of higher unemployment and lower interest rates.”

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Galina Mikova

Galina is a Hubspot-certified Technical Writer with over 10 years of experience in working with Fortune 500, private investment, banking, FOREX and niche tech companies as well as crypto and blockchain startups. She has a solid background in FinTech and blockchain technology.