巴克莱-美股-银行业-美国大型银行业2019年会议预览：利率影响聚焦-2019.9.4-74页.pdf

Equity Research 4 September 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 68.Restricted-Internal U.S.Large-Cap Banks 2019 Conference Preview:Interest Rate Impact and Response in Focus We are hosting our 17th annual Global Financial Services Conference in New York City next week.We have over 200 financial companies participating,which is a record for a sell-side financials conference.In addition to company presentations,we have 10 topical panels,and a full day fintech track,with over 30 confirmed companies.Equity investor registration is running down 7%from this time last year,less than the reduction in invites sent.This decline is modestly less than the declines seen in registration for our Consumer Staples(-18%)and Energy(-14%)conferences this week.The most requested companies among those hosting meetings with investors are BAC,WFC,COF and GS.Adjusted for market cap,from our coverage,CFG,CMA,ALLY and MTB received outsized attention.The largest percentage increases in meeting requests relative to last year,within our coverage,looks to be for BAC,PNC,FITB and GS,while NTRS,KEY,CMA and STT saw the largest percentage reductions in meeting requests.The 3Q19 EPS estimate bias post this event has typically been lower and we expect this year to be no different given the change to interest rate backdrop since the 2Q19 earnings conference calls.While the Feds 25bp cut at its July 31 meeting was expected,the yield curve has flattened more than anticipated,weighing on asset yields this quarter.Still,we wouldnt expect these downward revisions to come as a shock to investors.Since the announcement at the start of August that the U.S.would be placing additional tariffs on goods and products coming from China,the BKX has dropped 9%,compared to a much lower 2%decline in the S&P 500,as it caused a shift in interest rate expectations.In addition,in 4 of the past 5 years post this Conference,we have lowered our 3Q estimates at more companies than we raised them at.Still,on average,two-thirds of our coverage then exceed EPS expectations,when they reported.At the Conference,looking at expected results for 3Q19 relative to 2Q19,generally speaking,we expect the banks to talk to:stable to modestly lower net interest income reflecting continued loan growth(though seasonal headwinds),lower net interest margins(pressured reinvestment rates,though deposit costs beginning to turn),and one more day;varied fee income trends(mortgage higher,investment banking fees seasonally lower,trading revenues seeing easing y-o-y comps);controlled expenses(branch closures,tech-related efficiency improvements);relatively benign asset quality metrics(though NPA,NCO and reserve/loan ratios all bottoming out);higher tax rates;and a reduced share count(-2%;would mark the largest post crisis quarterly decline).Despite the downward estimate bias,valuation and yield should provide support.The group is trading at 9.8x forward EPS(20%discount to its historical average)and a 61%P/E relative to the S&P 500(17-year low).The median bank also has an all-in yield of a full 11.5%(8.2%share buyback,3.4%dividend),the highest of any major industry.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 4 September 2019 2 OVERVIEW SEPTEMBER 9-11:SHOULD BE VERY INFORMATIVE September 2019 Conference Preview Overview We are hosting our 17th annual Global Financial Services Conference in New York City next week.Highlights include:Over 200 participating financial companies,which is a record for a sell-side financials conference.Keynote presentations from Barclays Group CEO Jes Staley,JPMorgan Chase Chairman&CEO Jamie Dimon,and former President&CEO of the Dallas Fed Richard Fisher.Several panels on key industry topics,including interest rates,deposits,M&A,capital,regulatory environment,political landscape,Libor,accounting/CECL,BDCs,asset management,and our sub-sector outlooks.Full day Fintech track,with over 30 confirmed public and private companies.After introducing an automated response system(ARS)to our Conference way back in 2012,we will continue to utilize this technology to gather information on investor positioning and address their concerns on the spot.We will aim to provide real-time feedback at the websites below,which also contain additional information about the Conference.For registration information,you must contact your Barclays sales representative directly.Conference research website:https:/ Agenda:https:/ Meetings only companies:https:/ Conference information website:http:/ Mobile site: BarclaysIB#BarcFinancials Equity investor registration is running down 7%from this time last year,less than the reduction in invites sent(Figure 1).This decline is modestly less than the reductions seen in registration for our Global Consumer Staples Conference(Sept 3-5 in Boston;-18%)and our CEO Energy Conference(Sept 3-5 in NYC;-14%).The most requested companies among those hosting meetings with investors are BAC,WFC,COF and GS.Adjusted for market cap,from our coverage,CFG,CMA,ALLY and MTB received outsized attention.The largest percentage increases in meeting requests relative to last year,within our coverage,looks to be for BAC,PNC,FITB and GS,while NTRS,KEY,CMA and STT saw the largest percentage reductions in meeting requests.We note there have been several management changes since last years gala.The biggest was the March 28 announcement that then WFC CEO Tim Sloan informed its Board he intended to step down effective immediately(31 years at the company,2.5 years as CEO).The Board elected Allen Parker,its General Counsel,as interim CEO.An external search process for a new CEO is underway.Given the Conference will be 5.5 months after this abrupt change,we hope to get additional color on its search(CFO John Shrewsberry will be presenting).Also,since last years gala,GS CEO David Solomon replaced Lloyd Blankfein,STT CEO Ron OHanley succeeded Jay Hooley,and CMA CEO Curtis Farmer took over from Ralph Babb.Still,all of these individuals participated last year,and all are slated Barclays|U.S.Large-Cap Banks 4 September 2019 3 to return this year(though Mr.Babb accompanied Mr.Farmer last year).In addition,BBT CEO Kelly King will once again be there,presenting the same week as his 70th birthday.The BBT/STI MOE announcement clarified BBTs succession plan for King,who is slated to serve as Chairman&CEO until Sept.12,2021(his 73rd birthday),Chairman for another year after that,and a board member for one more year.Also,since last years Conference,C Chairman Michael ONeill retired and was replaced by the former Comptroller of Currency John Dugan and RF Chairman Grayson Hall was replaced by Charles McCrary.McCrary has been Lead Independent Director of RF since May 2013(former CEO of Alabama Power Co.).While Mark Mason watched then C CFO John Gerspach from the audience last year,Mason will take the stage this year,as he succeeded a retiring Gerspach in March.Last year,Marianne Lake presented as CFO of JPM.She recently moved to become CEO of Consumer Lending at JPM and was replaced by JPMs CEO of Card Services Jenn Piepszak.While JPM CEO Jamie Dimon is representing the largest U.S.bank this year,Piepszak might also be in attendance.In mid-May,HBAN filed a terse 8-K saying it entered into a Transition Agreement with CFO Mac McCullough setting forth the terms of his retirement upon the commencement of employment of his successor.His employment with HBAN is expected to cease on Dec 31.While we still expect McCullough to attend and present,we wonder if he will have any update on his successor.And last year,during this Conference,GS named John Waldron as its new President&COO and Stephen Scherr its CFO as Solomon looked to put his stamp on GSs new management direction.We also saw Director of Investor Relations changes at BK,C,and FITB since last years event.Well watch to see if any of the messaging is different.FIGURE 1 Equity Investor Registration Source:Barclays Research Earnings Outlook While we really appreciate companies talking about their strategic initiatives and differentiated long-term growth opportunities,one of the focuses at our annual September Conference is a fresh read on 3Q earnings,particularly given there will be only two weeks left to go in the quarter and there has not been any other public appearances since the 2Q earnings conference call season.The 3Q EPS estimate bias post this event has typically been lower and we expect this year to be no different given the change to interest rate backdrop since the 2Q19 earnings conference calls.While the Feds 25bp cut at its July 31 meeting was expected,a roughly 55bp drop in the 10-year treasury yield and a 20bp decline in 1-month Libor,which,as detailed later,will weigh on asset yields this quarter,was likely more severe than anticipated.Still,we wouldnt expect these downward revisions to come as a shock to investors.Since the announcement at the 0204060801001202010201120122013201420152016201720182019Barclays|U.S.Large-Cap Banks 4 September 2019 4 start of August that the U.S.would be placing additional tariffs on goods and products coming from China,the BKX has dropped 9%,compared to a much lower 2%decline in the S&P 500,as it caused a shift in interest rate expectations.In addition,in 4 of the past 5 years post this Conference,we have lowered our 3Q estimates at more companies than we raised them at(Figure 2).Still,on average,two-thirds of our coverage then exceeded EPS expectations when they actually reported 3Q results(Figure 3).FIGURE 2 Coverage 3Q EPS Estimate Changes Post Conference FIGURE 3 Coverage Quarterly EPS Results Relative to Consensus 0%10%20%30%40%50%60%70%80%90%100%1Q101Q121Q141Q161Q18BeatIn lineMiss Source:Barclays Research Source:Barclays Research FIGURE 4 Earnings Equation for Median Large-Cap Bank,2014 2019E Source:Barclays Research At the Conference,looking at expected results for 3Q19 relative to 2Q19,generally speaking,we expect the banks to talk to:stable to modestly lower net interest income 02468101220142015201620172018RaisedLowered2014A2015A2016A2017A2018A2019E2019 OutlookINCOME STATEMENTRevenue0%3%4%7%5%2%We expect continued EPS growth with modest revenue growthNet interest income1%3%9%9%7%2%as NII should increaseAverage earning assets7%6%5%4%2%4%with modest balance sheet growth Net interest margin(bp chg)(15)(10)6 14 11 (5)only partially offset a lower net interest margin Loan loss provision-10%23%22%-4%-7%15%and despite a higher provision(off a low base)Fee income0%2%1%6%3%1%even if fee income growth remains modestExpenses-2%2%3%4%3%1%as positive operating leverage should continuePre-provision net revenue4%4%8%12%8%4%driving PPNR higher,whilePreferred dividends15%15%7%6%0%0%evolving rules could slow preferred issuanceNet income5%0%4%7%30%0%resulting in continued net income growth,coupled withShares-1%-2%-2%-3%-4%-5%very active share repurchaseEPS3%3%6%12%43%7%should result in mid to high single-digit EPS growth.Tangible book9%6%6%5%5%9%and continued tangible book value expansion.RATIOSROA0.91%0.95%0.92%1.00%1.27%1.25%We expect ROA to remain improvedROE9.46%8.58%8.08%9.28%12.02%11.35%as both ROEROTCE11.53%11.87%11.01%12.37%16.72%15.16%and ROTCE have returned to healthy levelsNIM3.07%2.88%2.86%3.06%3.18%3.09%even if NIMs return to contractingOperating leverage1.31%0.71%1.44%2.75%1.87%0.27%as positive operating leverage continues(less branches,tech)Efficiency ratio63.4%63.9%63.2%60.5%59.7%57.9%driving the efficiency ratio toward the mid-50%sNCO ratio0.32%0.27%0.32%0.25%0.23%0.32%and NCOs,while higher,remain below historical levelsTax rate27.5%29.7%29.9%33.0%19.7%20.7%and tax rates level off.Barclays|U.S.Large-Cap Banks 4 September 2019 5 reflecting continued loan growth(though seasonal headwinds),lower net interest margins(pressured reinvestment rates,though deposit costs beginning to turn),and one more day;varied fee income trends(mortgage higher,investment banking fees seasonally lower,trading revenues seeing easing y-o-y comps);controlled expenses(branch closures,tech-related efficiency improvements);relatively benign asset quality metrics(though NPA,NCO and reserve/loan ratios all bottoming out);a higher tax rate(up 70bps);and a reduced share count(-2%as CCAR 2019 cycle begins;would mark the largest post crisis quarterly decline).Stock Outlook While interest rate expectations have shifted since the start of the year and economic growth is slowing(and could slow even further amid trade-induced uncertainties)pressuring earnings,bank stocks could still benefit from the following six factors we initially laid out at the beginning of the year(see 2019 Outlook Past,Present&Yet to Come:Less Good Doesnt Mean Bad,Buy Banks,1/2/19),which we believe still generally hold.These are repeated below with updated thoughts:1.Continued EPS and book value growth.While the median bank might earn less than initially expected,we expect mid-to-high single-digit EPS growth this year.Although further growth into 2020 will be somewhat dictated by interest rates,we expect profitability metrics to remain sound and capital return to continue,even in a recession.2.A continuation of active capital management.We expect our median bank to repurchase 8%of its shares over the next 4 quarters,up from 6%in the prior 4 quarters,in addition to a dividend yield of over 3%.3.We believe we are approaching regulatory finalization.Last month,Fed Vice Chair for Supervision Randal Quarles said the Feds revised Stress Capital Buffer(SCB)proposal is expected in the near future.Also regulators simplified the Volcker Rule in late August.4.We expect technology and economies of scale to increasingly be a differentiator for the largest banks.The top 4 banks are expected to spend$38bn on technology this year,almost 1.5x the next 18 banks.These banks have 40%deposit market share,137mn online banking users(more than half of the U.S.total population over 18yrs old),and 98mn mobile banking users.Efficiency ratios for our coverage improved on a y-o-y basis for the 21st straight quarter in 2Q19.5.Should our economic base case not pan out,we believe the group is more defensive than investors appreciate.At the start of the year our economists expected the Fed to hike 100bps in 2019.Now,they expect 100bps of cuts.Still,we believe the banks have navigated this change relatively well(while they may make less money,they will s