US Large Cap Banks Stuck In A Growth Quagmire: Credit Suisse

US Large Cap Banks Stuck In A Growth Quagmire: Credit Suisse
By [Public domain], <a href="">via Wikimedia Commons</a>

Credit Suisse Equity Research published a report Monday, April 21st, titled “US Large Cap Banks”. In the report, CS analysts Moshe Orenbuch and Jill Glaser Shea take a closer look at the balance sheet of large cap banks including Bank of America Corp (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Co (NYSE:WFC), PNC Financial Services Group Inc (NYSE:PNC) and Citigroup Inc (NYSE:C).

Large cap banks: Relatively weak revenue growth

Orenbuch and Glaser Shea highlight that all of the large cap banks are suffering from relatively anemic revenue growth. They point out that revenues were flat quarter over quarter with 2% drop in spread income and a decline in fee income among many large banks. Total revenues dropped 3% year over year. Declining mortgage banking activity was one of the major reasons for the decline in fee income.

Exclusive: Third Point is diving into the private and SPAC markets [In-Depth]

Nestle Dan Loeb Daniel Loeb third point capital hedge fund manager activist investor poison pen activism Yahoo corporate governance famous investorsDan Loeb's Third Point returned 11% in its flagship Offshore Fund and 13.2% in its Ultra Fund for the first quarter. For April, the Offshore Fund was up 1.7%, while the Ultra Fund gained 2.3%. The S&P 500 was up 6.2% for the first quarter, while the MSCI World Index gained 5%. Q1 2021 hedge Read More

Mortgage banking activity declines

The numbers made it clear that mortgage banking activity continues its downward spiral. “…core mortgage banking revenues declined 22% q/q and down 58% y/y. Origination volumes declined 26% q/q and down 66% y/y which came in a bit higher than the MBA forecast which called for a 23% q/q decline in origination volumes. GOS margins were also under pressure, down an average 23 bps q/q (down 53bps y/y) to 2.1% after rebounding higher last quarter.”

Large cap banks: Credit quality trends

The improving credit quality of big bank loans has been a bright spot for some time now, and credit quality in the sector continued to improve last quarter, but only slightly. Orenbuch and Glaser Shea note the improving credit quality trend appears to be losing steam. They also note provision expense varied a good bit. Bank of America Corp (NYSE:BAC), Citigroup Inc (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) all reported quarter-over-quarter increases in provision expense, but PNC Financial Services Group Inc (NYSE:PNC) and U.S. Bancorp (NYSE:USB) reported declines. Loan loss reserves also continue to decline across the board at large banks.

Big bank Basel III Tier 1 common equity ratios

The Credit Suisse report notes that Citigroup Inc (NYSE:C) has the highest Basel III Tier 1 common equity ratio at 10.4%. Wells Fargo comes in second at 10.0%, Bank of America third at 9.9%, and JPMorgan fourth at 9.5% as of March 31, 2014. The average Basel III ratio of the large banks is well above the 7% minimum, so no significant Basel III compliance issues are anticipated.

No posts to display