TwentyFour Asset Management
Like many market participants we are looking ahead to a much anticipated Q2 reporting season, which is even more pertinent this year given the unprecedented environment we have all found ourselves in. We are particularly interested in reviewing the major banks given they are at the centre of the transmission mechanism and hence a barometer for the wider economy.
The big global banks kick off their Q2 reporting next week with Wells Fargo and Citibank on July 14, Goldman Sachs and Morgan Stanley on July 15 and then JP Morgan and Bank of America on July 16.
In addition to the actual numbers reported, the comments from management will be closely scrutinised for signs of the challenges being felt by corporates and the consumer, in addition to the all-important recovery outlook. We know that the global economy will have felt the impact of the pandemic most severely in Q2, and the largest lenders are immersed in, and have direct contact with, all sectors of the economy. It follows that when Jamie Dimon, CEO of JP Morgan, or Brian Moynihan, CEO of Bank of America, speak about the health of the economy, they do so with insight and authority and it is worth listening.
Q2 has been unprecedented for a number of reasons, not least for the remarkable volume of new issuance in the credit markets. We would therefore expect those banks with a presence in the primary markets to have benefited from the fee income generated by those borrowers, many of whom front-loaded their issuance. Back in May we noted the comments from Jamie Dimon that his bank’s hefty loan-loss provisions taken in Q1 may be sufficient for the rest of the year, and then Brian Moynihan commented that BofA was not seeing loan losses coming through as fast and as much as they would normally expect for such a recessionary period. We are therefore very interested to hear any follow-up comments related to real and expected loan losses, as these could be key drivers of investor sentiment as we progress over the summer period.
In terms of the European banks we have to wait until July 29 for Barclays and Deutsche Bank to report, with BNP Paribas following on July 31 and HSBC on August 3. However, reports from the US behemoths next week will be the critical barometer and will give us more clarity on the underlying health and outlook for the system. We will not be the only ones paying close attention to both the numbers and the comments.