EquityResearch1May2019COREBarclaysCapitalInc.and/oroneofitsaffiliatesdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.PLEASESEEANALYSTCERTIFICATION(S)ANDIMPORTANTDISCLOSURESBEGINNINGONPAGE51.Restricted-InternalU.S.Large-CapBanks1Q19EPSReview:EPSGrowthtoContinueDespiteNewRateViewIn1Q19,forthe12thstraightquarter,two-thirdsormoreofourcoverageexceededconsensusEPSexpectations.Still,estimatesdiddeclinecomingintotheprintsandover80%ofourcoveragereportedalowerthanexpectedtaxrate.Expenseswereatadbetterthanforecasted,whileloanlossprovisionswerealittlehigherthananticipated(netcharge-offswerein-lineandcriticized/classified/nonperformingcommercialloansincreased).Also,forthe3rdstraightquarter,themajorityofbankssawfeeincomecomeinbelowconsensus(medianbankmissedby2%).Netinterestincome(down1%,thoughup1%-daycountadjusted),netinterestmargin(stable),loans(ledbyC&I),anddeposits(thoughmixworsethanweanticipated)allapproximatedexpectations.Lookingto2Q19,whilenetinterestmarginscouldcontractforthefirsttimeinalmost3years,webelievefeeincomecanincrease5%sequentially,whichwouldmarkitsfastestgrowthratein3years.In2Q19,relativeto1Q19,weexpect:highernetinterestincomereflectingcontinuedloangrowth(2Qvs.1Qtendstobeseasonallystrongestquarter),stabletomodestlylowernetinterestmargins(noFedmove,butsmallerincreaseinIBDcosts,improvingyieldcurveoflate),andonemoreday;higherfeeincomeowingtoincreasedinvestmentbanking(IPO,M&A),assetmanagement(higheraverageequityprices),mortgage(higheroriginations),andservicecharges/creditcardfees;controlledexpenses(positiveoperatingleverage);benignassetqualitymetrics(banksunfazedbyincreaseinC&INPLs/criticizedassetsin1Q);ahighertaxrate(1Qseasonallylow);andareducedsharecount(finishingupCCAR2018).Note,thereareseveralindustryconferencesduring2Q19,startingwithoursinLondononMay...
