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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.
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.”
