A sneak peek at mega cap US banks

The US mega cap banks have closed the 2020 books with elan, having largely performed beyond expectations in 4Q. It was a rocky road for financials last year owing to the pandemic’s implications on numerous fundamentals, including lower rates, deterioration in economic variables, rising loss-loan reserves.

Source © Kalkine Group 2021

Banks with large share of consumer business have fared poorly against those with higher share in wall street business. To put it into perspective, Goldman Sachs, Morgan Stanley and JP Morgan delivered significant earnings uplift in broking, investment banking, and asset management.

For the whole year, Citigroup, Bank of America, Well Fargo have used relatively higher capital to cover expected credit loss provisions, which also normalised in the last three months as banks released some provisions.

Goldman Sachs

Goldman Sachs reported a 22% jump in revenue to hit $44.56 billion in FY2020. This was driven by strength in its Investment Banking and Global Markets segment.

Net earnings for the year came at $9.45 billion, up 12% over the year. Last quarter contribution to net earnings was $4.5 billion. GS reported provision for credit losses of nearly $3.1 billion. It has also declared a dividend of $1.25 per share.

Morgan Stanley

Morgan Stanley clocked net revenues of $48 billion in 2020, which rose 16% year-over-year. Net income was nearly $11 billion, up 22% over the previous year. Institutional Securities delivered record net revenue of nearly $26 billion.

During the year, the firm completed the acquisition of E*TRADE Financial Corp. MS is also in the process of acquiring asset manager Eaton Vance, and the transaction is expected close this year. The firm has declared quarterly dividend of $0.35.

JP Morgan

JP Morgan reported managed revenue of nearly $123 billion, up by $4.5 billion over the previous year. Its reported net income fell $7.3 billion to $29.1 billion in 2020. At the end of the year, the firmwide allowance for credit losses rose significantly to $30.8 billion, after releasing $2.9 billion in the last quarter.

Similarly, consumer loans with payment deferral stood at around $24.16 billion, indicating a significant improvement from $62.27 billion at the end of June 2020. The bank’s CET1 capital ratio on a standardised basis was 13.1%.

Citigroup

Citigroup reported revenues of $74.3 billion in 2020 and net income of $11.4 billion. During the year, the bank increased its credit reserves by nearly $10 billion as allowance for expected credit losses rose substantially.

Net income declined 41% compared to the previous year, largely due to lower revenues and higher expenses. At the end of 4Q, net interest margin was 2%.

Bank of America

Bank of America delivered revenue of $85.5 billion in 2020, which was down 6% compared to last year. Net income of the bank declined by 35% or $9.5 billion to $17.9 billion against $27.4 billion in the previous year.

On a standardised basis, CET 1 ratio of the bank was 11.9% at the end of 4Q. A sharp fall in net income was due to the rising provision for credit losses. Bank of America incurred expense of $11.3 billion as provision for credit losses.

Wells Fargo

Wells Fargo reported revenue of $72.3 billion compared to $85.06 billion in the previous year. Its provision for credit losses stood at $14.12 billion, which is a substantial rise from $2.68 billion in FY2019.

As a result, the bank’s net income fell to $3.3 billion in 2020 against $19.54 billion in the previous year. On average, it had $941.8 billion in loans, while deposits stood at 1,376 billion.