巴克莱-美股-银行业-2019年Q1美国大型银行业EPS回顾-2019.5.1-57页.pdf

Equity Research 1 May 2019 CORE Barclays Capital Inc.and/or one of its affiliates does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.PLEASE SEE ANALYST CERTIFICATION(S)AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 51.Restricted-Internal U.S.Large-Cap Banks 1Q19 EPS Review:EPS Growth to Continue Despite New Rate View In 1Q19,for the 12th straight quarter,two-thirds or more of our coverage exceeded consensus EPS expectations.Still,estimates did decline coming into the prints and over 80%of our coverage reported a lower than expected tax rate.Expenses were a tad better than forecasted,while loan loss provisions were a little higher than anticipated(net charge-offs were in-line and criticized/classified/nonperforming commercial loans increased).Also,for the 3rd straight quarter,the majority of banks saw fee income come in below consensus(median bank missed by 2%).Net interest income(down 1%,though up 1%-day count adjusted),net interest margin(stable),loans(led by C&I),and deposits(though mix worse than we anticipated)all approximated expectations.Looking to 2Q19,while net interest margins could contract for the first time in almost 3 years,we believe fee income can increase 5%sequentially,which would mark its fastest growth rate in 3 years.In 2Q19,relative to 1Q19,we expect:higher net interest income reflecting continued loan growth(2Q vs.1Q tends to be seasonally strongest quarter),stable to modestly lower net interest margins(no Fed move,but smaller increase in IBD costs,improving yield curve of late),and one more day;higher fee income owing to increased investment banking(IPO,M&A),asset management(higher average equity prices),mortgage(higher originations),and service charges/credit card fees;controlled expenses(positive operating leverage);benign asset quality metrics(banks unfazed by increase in C&I NPLs/criticized assets in 1Q);a higher tax rate(1Q seasonally low);and a reduced share count(finishing up CCAR 2018).Note,there are several industry conferences during 2Q19,starting with ours in London on May 14-15(10 of the 20 largest U.S.banks confirmed to participate).While bank stocks have bounced YTD(BKX+20%),modestly outperforming the market(S&P 500+17%),we believe they have the ability to continue to outperform as relative valuations remain depressed.Our 2019 optimistic thesis depends on the group benefiting from:continued earnings/book value growth,active capital management,regulatory finalization,and an increasing benefit from leveraging technology economies of scale.Furthermore,should the economic backdrop be more challenging than our base case,we believe the group will prove to be more defensive than investors appreciate(1Q19 can be an example of that as results were fine despite the yield curve flattening and loan loss provisions increasing).And,one gets this at an attractive valuation.The group is trading at 10.4x forward EPS and a 61%P/E relative to the S&P 500.On an absolute basis,at a 15%discount to its historical average,while on a relative basis it approximates its 17-year low,despite a much improved risk/return profile.In addition,it is trading at 1.7x tangible book.Historically,a 16%ROTCE(which it posted in 1Q19)has equated to 2.3x tangible book.And,the median bank has an all-in yield approaching 10%(7%buyback plus 3%dividend).INDUSTRY UPDATE U.S.Large-Cap Banks POSITIVE Unchanged U.S.Large-Cap Banks Jason M.Goldberg,CFA+1 212 526 8580 BCI,US Inna Blyakher+1 212 526 3904 BCI,US Matthew Kesselhaut+1 212 526 0181 BCI,US Eugene Koysman+1 212 526 0971 Eugene.K BCI,US Brian Morton,CFA+1 212 526 2163 BCI,US Barclays|U.S.Large-Cap Banks 1 May 2019 2 NOTES TO THE READER This report contains our macro thoughts following the 1Q19 earnings season.We have previously published real-time company notes with our company specific conclusions.Summaries of those reports can be found starting on page 20,and links to the full reports are below.ALLY-1Q19 EPS Review:Well-Positioned to Achieve 2019 Outlook(4/22/19)BAC-1Q19 EPS Review:Several Levers to Mitigate Softer NII Trajectory(4/17/19)BBT-1Q19 EPS Review:Better NII,Tax Rate Offset Softer Fees;AML Order Lifted(4/22/19)BK-1Q19 EPS Review:Deposit Runoff Drives Miss,NII Pressure to Persist(4/17/19)C-1Q19 EPS Review:Still Targeting 12%ROTCE in 2019,13.5%+in 2020(4/16/19)CFG 1Q19 EPS Review:Hints TOP VI Could Be Transformational(4/22/19)CMA-1Q19 EPS Review:Lowers NII Outlook on Deposit Costs but Credit Better(4/17/19)COF-1Q19 EPS Review:Targeting 42%Operating Efficiency Ratio by 2021(4/26/19)FITB-1Q19 EPS Review:Good Momentum As It Brings MBFI into the Mix(4/24/19)GS-1Q19 EPS Review:11%ROE Despite Mixed Backdrop,Numerous Initiatives(4/16/19)HBAN-1Q19 EPS Review:C&I NPL and NCOs Up,but Doesnt Appear Concerned(4/25/19)JPM-1Q19 EPS Review:The Start of a New Streak Driven by NII and Cost Control(4/15/19)KEY-1Q19 EPS Review:Light IB Fees Drive Miss,Capital Plan Below Expectations(4/22/19)MS-1Q19 EPS Review:A Better Quarter with Momentum Into the Next(4/17/19)MTB-1Q19 EPS Review:Still Aiming for Modest Operating Leverage in 2019(4/16/19)NTRS-1Q19 EPS Review:Stable NII,Higher Than-Expected Fees Drives EPS Beat(4/24/19)PNC-1Q19 EPS Review:Loan Growth Beats Guidance,Fee Income&Costs in Line(4/15/19 RF-1Q19 EPS Review:Strong Loan Growth Leads to Higher Deposit Cost(4/22/19)STI-1Q19 EPS Review:Loan Sale Gain in 2Q to Fund Securities Repositioning(4/22/19)STT-1Q19 EPS Review:1Q Approximates Guidance but Still Faces Headwinds(4/24/19)USB-1Q19 EPS Review:Results in Line as Tax Benefit Offsets Softer Fees(4/17/19)WFC-1Q19 EPS Review:Cuts NII Guide and Asset Cap Exit Timeline for New CEO(4/15/19)Links to our excel models(updated post 1Q19 results)can be found by clicking on the ticker below:ALLY(4/22/19)BAC(4/17/19)BBT(4/22/19)BK(4/18/19)C(4/16/19)CFG(4/22/19)CMA(4/22/19)COF(4/26/19)FITB(4/24/19)GS(4/16/19)HBAN(4/26/19)JPM(4/15/19)KEY(4/24/19)MS(4/18/19)MTB(4/16/19)NTRS(4/24/19)PNC(4/15/19)RF(4/23/19)STI(4/22/19)STT(4/24/19)USB(4/18/19)WFC(4/15/19)We have published a separate report focused solely on the results of the Investment Banking operations of our coverage.See here:U.S.-Based Investment Banks:1Q19 Summary and Outlook(4/22/19)We also published a list of forward looking disclosures each company made in its 1Q19 earnings release,slide deck and conference call.See here:Forward-Looking Statements from the 1Q19 Earnings Season(4/26/19)Note,our Americas Select Franchise Conference is May 14-15 in London(conference website:HERE,agenda:HERE).From our coverage,we expect ALLY,BBT,BK,COF,CFG,GS,MTB,RF,USB,and WFC to participate.Herein,we make several references and/or comparisons to our expectations going into the quarter.These were all previously reported in our publication titled“1Q19 EPS Preview:There is more to the story than interest rates”(4/4/19).Barclays|U.S.Large-Cap Banks 1 May 2019 3 1Q19 EARNINGS REVIEW&OUTLOOK Outlook Following a hard sell-off into year-end,bank stocks snapped back at the start of the year.In January,the BKX jumped 12%(S&P 500+8%).It increased another 4%in February(S&P 500+3%).Still,bank stocks came under pressure in March as the Fed shifted its outlook and the yield curve flattened,while Brexit and China uncertainties also weighed.In March,the BKX fell 7%,while the S&P 500 rose 2%.Still,April saw another reprieve,with the BKX bouncing 10%,compared to the S&P 500s 4%increase.The market responded favorably to more than two-thirds of our coverage exceeding consensus EPS expectations for the 12th straight quarter in 1Q19,as well as a steepening of the yield curve(2s/10s+9bps in April to 23bps,its widest level of the year).Of note,investors seemed to shrug-off an increase in nonperforming/criticized commercial loans during the 1Q19 earning season.On a year-to-date basis,the BKX is now up 20%,compared to the S&P 500s 17%rise.Still,we believe bank stocks have the ability to continue to outperform the market,as relative valuations remain depressed.Our 2019 optimistic thesis depends on the group benefiting from:continued earnings/book value growth,active capital management,regulatory finalization,and an increasing benefit from leveraging technology economies of scale.Furthermore,should the economic backdrop be more challenging than our base case,we believe the group will prove to be more defensive than investors appreciate(1Q19 can be an example of that as results were fine despite the yield curve flattening and loan loss provisions increasing).And,one gets this at an attractive valuation.The group is trading at 10.4x forward EPS and a 61%P/E relative to the S&P 500.On an absolute basis,at a 15%discount to its historical average,while on a relative basis it approximates its 17-year low,despite a much improved risk/return profile.In addition,it is trading at 1.7x tangible book.Historically,a 16%ROTCE(which it posted in 1Q19)has equated to 2.3x tangible book.And,the median bank has an all-in yield approaching 10%(7%buyback plus 3%dividend).FIGURE 1 U.S.Large-Cap Banks Historical Valuation Ranges Source:Barclays Research and Refinitiv Looking out to 2Q19,relative to 1Q19,we expect:higher net interest income reflecting continued loan growth(2Q vs.1Q tends to be seasonally strongest quarter),stable to modestly lower net interest margins(no Fed move but smaller increase in IBD costs,improving yield curve of late),and one more day;higher fee income owing to increased investment banking(IPO,M&A),asset management(higher average equity prices),mortgage(higher originations),and service charges/credit card fees;controlled expenses(positive y-o-y operating leverage);relatively benign asset quality metrics(banks seemed unfazed by increase in nonperforming commercial loans/criticized assets in 1Q);a higher tax rate(1Q seasonally low);and a reduced share count(finishing up CCAR 2018).Of note,while net interest margins could contract for the first time in almost 3 years in 2Q19,we believe fee income can increase 5%sequentially,which would mark its fastest growth Forward P/EForward P/E Relative to S&PPrice/Book ValuePrice/Tangible Book ValueDividend YieldCurrLong-Term AvgHighLowCurrLong-Term AvgCurrLong-Term AvgHighLowCurrLong-Term AvgHighLowCurrLong-Term AvgHighLowMoney Centers9.6x10.9x24.1x5.1x57%66%1.17x1.34x4.38x0.29x1.42x1.50 x4.84x0.38x2.3%2.0%15.3%0.4%Super Regionals10.2x12.2x30.8x6.4x60%74%1.28x1.54x3.94x0.45x1.69x1.91x5.23x0.60 x3.1%2.5%12.9%0.6%Trust Banks12.2x15.0 x33.9x5.0 x72%91%1.57x2.11x7.59x0.80 x2.39x2.80 x8.40 x1.03x2.5%1.8%7.6%0.6%Large-Cap10.4x12.2x29.7x5.9x61%74%1.30 x1.57x4.54x0.46x1.72x1.94x5.57x0.61x2.8%2.3%12.7%0.5%S&P 50017.0 x16.5x28.5x11.0 x3.52x2.78x5.17x1.54x3.52x2.78x5.17x1.54x1.9%2.0%4.0%1.1%Barclays|U.S.Large-Cap Banks 1 May 2019 4 rate in 3 years.This also follows 3 straight quarters of the majority of coverage missing consensus fee income expectations.We now expect 7.8%EPS growth in 2019,down from 8.3%prior to 1Q19 results.Our forecast still assumes 3%revenue growth.While also still expect 3%net interest income growth,we increased our average asset growth forecast from 2%to 3%and lower our net interest margin expectations from a 4bp increase to a 2bp increase for the full year(note this assumes a modest reduction from 1Q19 levels).As such,higher than previously expected balance sheet growth could compensate for less margin expansion as the Fed appears to be on hold.In addition,despite a soft 1Q19,we still expect modest fee income growth this year,as we foresee improvement in 2Q19.We also still assume continued positive operating leverage and relatively benign asset quality.Still,we expect the loan loss provision to increase 20%,albeit off a low base.FIGURE 2 Earnings Equation for Median Large-Cap Bank,2014 2019E Source:Barclays Research In looking at 2019 consensus EPS expectations from immediately prior to the 1Q19 EPS reporting season versus yesterday,shows the median bank saw a 0.2%reduction.If one just takes expected results for 2Q19-4Q19,the consensus EPS decline is closer to 0.8%as in several instance the 1Q19 beat was met with a reduction in the out quarters.Generally speaking,this reflects expectations of increased tax rates from 1Q19s lower than expected levels,as well as a reduced net interest margin outlook.NTRS,C,MS,PNC and JPM,all which benefit from an improved capital market backdrop,were the only banks to see this metric increase by$0.02 or more.On the other end,WFC,STT,BK,BAC and CMA,due to a reduced net interest income forecasts,coupled with GS,saw reductions in excess of 1.5%.The median banks 2020 EPS estimate declined 1.2%during the 1Q19 earnings season.Since the start of the year,2019 consensus EPS estimates have declined 0.7%at the median bank(S&P 500-1.4%).Estimates for 2020 have fallen a greater 1.0%(S&P 2014A2015A2016A2017A2018A2019E2019 OutlookINCOME STATEMENTRevenue0%3%4%7%4%3%We expect continued EPS growth with modest revenue growthNet interest income0%2%6%9%6%3%as NII could increaseAverage earning assets6%6%4%4%2%3%with modest balance sheet growth Net interest margin(bp chg)(15)(9)6 14 10 2 and more modest NIM expansion Loan loss provision-33%24%26%-5%-8%20%and despite a higher provision(off a low base)Fee income-1%2%1%5%2%1%even if fee income growth remains modestExpenses-2%1%3%4%3%1%as operating leverage should continuePre-provision net revenue4%3%7%11%8%5%driving PPNR higher,whilePreferred dividends15%22%7%8%0%0%evolving rules could slow preferred issuanceNet income4%1%1%6%28%2%resulting in continued net income growth,coupled withShares-1%-2%-3%-3%-4%-5%very active share repurchaseEPS3%2%2%10%42%8%could result in high single-digit EPS growth.Tangible book8%6%6%5%5%9%and continued tangible book value expansion.RATIOSROA0.93%0.97%0.93%1.02%1.27%1.26%We expect ROA to remain improvedROE9.24%8.52%8.04%9.05%11.91%11.60%as both ROEROTCE11.70%12.06%11.10%12.56%16.81%15.81%and ROTCE have returned to healthy levelsNIM3.02%2.88%2.86%3.04%3.16%3.14%even if the pace of NIM expansion slowsOperating leverage1.66%0.69%1.51%2.67%1.84%1.30%as positive operating leverage continues(less branches,rules)Efficiency ratio63.7%64.1%63.7%60.5%59.6%57.5%driving the efficiency ratio toward the mid-50%sNCO ratio0.35%0.28%0.33%0.27%0.27%0.34%and NCOs,while higher,remain below historical levelsTax rate28.0%29.0%29.8%30.2%19.6%21.4%and tax rates level offBarclays|U.S.Large-Cap Banks 1 May 2019 5+1.3%)as net interest income assumptions have been tapered as the Fed went on hold.Consensus now expects the median bank to grow EPS 8.3%in 2019,down from 8.9%at the start of the year(the S&P 500 has decreased from+7.3%to+5.7%).Still,consensus now expects the median bank to grow EPS 8.7%in 2020,up from 8.0%at the start of the year.From the market close on April 11(the trading day before the 1Q19 EPS reporting se