1、North America Equity Research31 July 2019Large Cap BanksPost 2Q: Tepid Qtr But Strong Stock Performance NIM Decline Guidance Less Than FearedLarge bank stocks have outperformed since 2Q earnings, continuing trends since CCAR 2019 results in June. We believe this outperformance reflects: 1) the Fed r

2、ateBanks Large-Cap Vivek Juneja AC(1-212) 622-6465vivek.junejaBloomberg JPMA JUNEJA <GO>Jonathan Summitt(1-212) 622-6341jonathan.summittAndrew J Dietrich(1-212) 622-4244aj dietrichJ.P. Morgan Securities LLCcuts are an insurance to keep up growth, not to offsooming recession; 2) outlookfor net-

3、interest margins (NIM) and net interest income is not as bad as feared; and 3) trading below long term averages pre-earnings. Strong overall credit quality andmodest recovery in long term rates reinforce the macro outlook. Large bank stocks are now trading close to long term averages on absolute and

4、 relative P/E multiples. Fundamentals are moderate as EPS growth is likely to continue to be led by share buybacks and cost cuts, offsetting further declines in NIM and moderate loan growth. Near term, we expect large bank stocks to remain in a narrow range as valuation is no longer a catalyst. Medi

5、um term, large bank stocks performance will be driven by economic outlook if no signs of recession, we expect bank stocks to hold up. Medium term, we relatively prefer banks with non-macro catalysts and/or lesser impact from rate cuts such as Citi, Citizens, and PNC. We upgrade US Bancorp to Neutral

6、 as better growth in some fee revenues should partly offset NIM pressure.·NIM pressure from rate cuts likely, but mid-sized regional banks have tempered the risk by adding hedges (swaps, floors), notably Regions, Fifth Third, SunTrust, Citizens, and PNC. Some banks, especially larger ones, are

7、trying to reduce this risk by adding fixed rate assets such as residential mortgages and MBS.Key concern is deposit betas, which rose a little further in 2Q but at a much slower pace interest bearing deposit costs rose on average by 5bp qoq in 2Q, down from 12bp qoq avg increase in 1Q. Total funding

8、 cost also slowed increase sharply to +2bp qoq on avg in 2Q from +11bp qoq in 1Q. Citizens stands out with the best trend as their total funding cost was flat qoq. There are concerns about banks ability to lower deposit costs in light of: 1) some continued loan growth; 2) loan/deposits ratios nudgin

9、g up on avg; and 3) national expansions, as banks offer higher rates in new markets to gain share. However, deposit mix shift slowed in 2Q: non-interest bearing deposit outflows slowed sharply and CD growth also slowed.2Q pre-tax income down 1.5% yoy at our regionals. Mixed 2Q was marked by: 1) mode

10、st 0.3% qoq drop in net interest income despite day count benefit; 2) sharp 7bp qoq fall in NIM; 3) mixed non-interest income trends; 4) controlled expense growth;5) strong overall credit quality, with continued commercial one-offs and reserve releases at some banks before CECL; and 6) high capital

11、ratios and share buybacks.Investment banking started off 3Q on a softer note, with several categories down yoy except debt underwriting and IPOs. Mortgage banking revenue could fall later in 3Q if 10 yr Treasury yield stays at current levels up about 12bp from recent lows.Offsets by some fee busines

12、ses. Insurance brokerage benefited strongly from improved pricing, driving BB&Ts very strong 11% yoy insurance fee growth (ex- acquisition). Payments-related businesses, such as merchant processing and custody business, continue to see good volume growth, but volumes are growing much faster than

13、 fees at US Bancorp (fees +4.5% yoy, volumes +8% yoy). There should be benefit in 3Q to US Bancorp from full quarter of billing in credit/debit card fees.Efficiency ratio gap continues to narrow among large banks as several of our regionals have been cutting costs actively to improve efficiency. Exc

14、luding Wells Fargo (which has unique issues), the range of core efficiency ratios has narrowed from 1,000bp in 2016 to 600bp in 2018 and 500bp in 2Q19.Selected Recent Reports:US Bancorp: Upgrading To Neutral From Underweight To Reflect Better Payments Revenue Trends In 2H19, dated July 31, 2019·

15、;····See page 42 for analyst certification and important disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware thatthe firm may have aof interest that could affect the objectivity of this repor

16、t. Investors should consider this report as only a singlefactor in making their investment decision.獲取報告1、2、3、每周群內7+報告；當日華爾街日報、4、行研報告均為公開利歸原作者所有，起點財經僅分發做內部學習。掃一掃 關注公號回復：加入“起點財經”群。Vivek Juneja(1-212) 622-6465vivek.junejaNorth America Equity Research31 July 2019Equity Ratings and Price TargetsMkt Cap

17、($ mn) Rating Price TargetCompanyTickerPrice ($)CurPrevCurEnd DatePrevEnd DateBank of America BB&T Corporation.Citizens Financial Group Fifth Third Bancorp PNC FinancialRegions Financial SunTrust Banks, Inc.U.S. Bancorp Wells FargoBAC US BBT US C US CFG US FITB US PNC US RF US STI US USB US WFC

18、US288,593.0039,365.25162,000.1017,235.5021,856.4464,147.8416,114.2029,356.7790,509.76214,571.6030.8951.3971.7137.6429.88141.9216.0566.1457.1448.55OW N OW OW N OW OW OW N UWn/c n/c n/c n/c n/c n/c n/c n/c UWn/c31.0053.5081.0042.0032.00150.5017.5068.5057.0048.50Dec-19 Dec-19 Dec-19 Dec-19 Dec-19 Dec-1

19、9 Dec-19 Dec-19 Dec-19 Dec-1929.5050.5077.0040.5030.00142.0017.0064.5052.5047.50n/c n/c n/c n/c n/c n/c n/c n/c n/c n/cSource: Company data, Bloomberg, J P. Morgan estimates. n/c = no change. All prices as of 30 Jul 19.2Vivek Juneja(1-212) 622-6465vivek.junejaNorth America Equity Research31 July 201

20、92Q Results Were Weak, Led By Poor Net Interest Income·2Q results were marked by: 1) modest 0.3% qoq decline in net interest income on average; 2) sharp decline in net interest margin (NIM); 3) modest period end loan growth at 1.2% qoq; 4) mixed trends in non-interest income, with trading and i

21、nvestment banking weak but partly seasonal increases in areas like card fees and service charges; 5) controlled expensegrowth (+1.1% yoy); 6) continued good credit quality; and 7) large share buybacks and strong capital levels.·We are adjusting EPS estimates to reflect 2Q results, management up

22、dates, market trends, and moving forward our two ratecuts from September and December 2019 to July and October.Table 1: EPS Estimate Changes$Table 2: EPS Growth to Be Led by Buybacks at Money CentersMoney Center banks, median non-FTE yoy growthSource: Company reports and J.P. Morgan estimates.Table

23、3: Buybacks to Also Drive EPS Growth at RegionalsRegional banks, median non-FTE yoy growthSource: Company reports and J P. Morgan estimates.Source: Company reports and J P. Morgan estimates.3201720182019E2020ENet Interest Income Non-Interest Income7%6%2%0%0%2%3%3%Revenue4%4%2%1%Expenses ProvisionsPr

24、e Provision Profit4%1%0%0%-11%-4%65%19%8%7%4%2%Core Net Income10%23%0%-2%Core EPS12%31%5%6%2Q192019E2020ENewOldChgNewOldChgBAC0.732.792.760.032.962.96-BBT1.094.264.28(0.02)4.574.67(0.10)C1.957.647.64-8.558.55-CFG0.963.843.86(0.02)4.054.10(0.05)FITB0.712.832.810.023.012.980.03PNC2.8811.2411.29(0.05)1

25、1.8511.85-RF0.381.511.53(0.02)1.621.64(0.02)STI1.435.515.73(0.22)5.855.98(0.13)USB1.094.314.260.054.494.440.05WFC1.304.784.81(0.03)4.604.85(0.25)201720182019E2020ENet Interest Income Non-Interest Income5%5%3%3%4%1%-1%-1%Revenue3%3%1%2%Expenses ProvisionsPre Provision Profit-1%-1%0%1%3%-3%14%21%11%10

26、%2%3%Core Net Income14%25%1%0%Core EPS19%33%11%10%Vivek Juneja(1-212) 622-6465vivek.junejaNorth America Equity Research31 July 2019YoY Trends: Pre-Tax Profit Mixed, EPS Growth Driven By Share Repurchases·2Q saw mixed pre-tax profit trends on yoy basis. SunTrust had the largest decline yoy among

27、 our banks, as a large rise inprovisions offset positive core operating leverage. Wells was next weakest due to lower revenues.·Core EPS growth yoy of 8.2% in 2Q primarily benefited from share repurchases.·Pre-tax income growth slowed in 1Q and 2Q19 due to slower growth in net interest inc

28、ome and rise in loan loss provisions.Table 4: Pre-Tax Income Growth Slowed Sharply in 1Q and 2Q Core pre-tax incomeTable 5: While Share Buybacks Led EPS GrowthCore EPS YoY Change YoY Change3Q184Q181Q192Q193Q184Q181Q192Q19BAC18.2%33.3%4.4%1.2%BAC42.8%58.2%13.3%13.8%BBT7.9%5.0%5.2%7.1%BBT32.1%24.4%8.6

29、%8.2%C1.7%4.1%-1.3%3.7%C16.6%16.2%11.8%12.2%CFG14.6%15.4%14.0%7.5%CFG37.3%38.7%18.8%10.1%FITB (with MBFI)15.2%11.8%4.2%17.6%FITB (with MBFI)38.0%55.7%12.8%7.3%JPM10.7%18.2%7.7%7.5%JPM31.8%33.0%14.3%13.0%PNC7.9%5.0%1.8%-1.5%PNC30.7%21.3%7.2%5.1%RF11.7%-18.0%-8.5%-2.0%RF39.8%5.5%4.8%9.1%STI14.0%8.9%-3

30、.7%-7.2%STI37.7%38.2%3.6%-0.6%USB5.7%5.4%2.1%3.5%USB19.8%22.1%4.3%7.3%WFC-4.7%-10.3%-15.9%-4.3%WFC10.3%14.3%-4.0%7.4%Median (ex FITB, JPM)7.9%5.0%1.8%1.2%Median (ex FITB, JPM)32.1%22.1%7.2%8.2%Median Regionals (ex FITB)7.9%5.0%1.8%-1.5%Median Regionals (ex FITB)32.1%22.1%4.8%7.4%Source: Company repo

31、rts and J.P. Morgan calculations.Source: Company reports and J P. Morgan calculations. Note 3Q and 4Q yoy EPS growth were boosted by tax reform.4Vivek Juneja(1-212) 622-6465vivek.junejaNorth America Equity Research31 July 2019Loan Growth Trends Were Mixed In 2Q, Resi Mortgages Strong Growth Area

32、3;Period end loans rose modestly by 1.2% qoq in 2Q on average at our banks trends were mixed, with half of our banks seeing better growth than 1Q and half worse. Average loans were up 0.9% qoq.·BB&T, PNC, and Bank of America saw stronger period end growth than peers, led by C&I and resi

33、dential mortgages, as well as auto loans at BB&T and PNC. Period end loan growth at Citizens and Regions was hurt by loan sales and plannedrun-off both due to balance sheet optimization to reduce lower profitability loans.PNC saw C&I loan growth above 2% qoq for 3rd consecutive quarter C&

34、;I loans rose 10.2% yoy at PNC, almost double the 5.2% average for our coverage group.··Residential mortgages were one of the strong loan growth categories in 2Q, up strongly by 1.8% qoq on average on period end basis as some banks are adding these loans to add fixed rate assets. However,

35、the risk would be increased prepayments if we go into recession and long term rates fall sharply further.Table 6: Period End Loan Grew 1.2% on Average, but Trends Were Mixed at Our BanksPeriod end loan growth qoqTable 7: Average Loan Growth Was Modest at 0.9% QoQAverage loan growth qoqSource: Compan

36、y reports. (1) C&I includes commercial leases and is only US loans.Source: Company reports. (1) C&I includes commercial leases and is only US loans.5Avg Total LoansAvg C&I Loans (1)Avg Resi Mortgage1Q192Q191Q192Q191Q192Q19BAC1.0%0.7%2.3%0.4%0.3%2.7%BBT0.4%1.6%1.4%2.0%0.9%2.2%C0.6%0.1%NAN

37、ANANACFG1.5%0.1%2.4%0.1%2.0%0.7%FITB (with MBFI)3.1%12.6%4.4%12.8%0.4%7.4%JPM0.7%-1.4%NANANANAPNC1.2%2.8%2.3%4.0%2.1%3.7%RF2.3%0.2%5.0%1.8%-0.2%-0.4%STI3.0%1.3%4.3%1.2%1.1%-0.9%USB0.9%1.1%1.4%1.2%1.7%1.9%WFC0.4%-0.3%1.7%-0.6%0.0%0.3%Median (ex C, FITB, JPM)1.1%0.9%2.3%1.2%1.0%1.3%PE Total LoansPE C&

38、amp;I Loans (1)PE Resi Mortgage1Q192Q191Q192Q191Q192Q19BAC-0.1%1.9%0.0%1.7%1.6%3.7%BBT0.0%2.4%0.2%2.8%0.6%3.3%C-0.3%0.9%4.4%NANANACFG0.8%-0.7%1.3%-1.1%1.0%0.1%FITB (with MBFI)15.3%-0.5%16.3%-1.8%8.4%-0.2%JPM-2.9%0.1%-3.0%NANANAPNC2.7%2.1%5.0%2.1%2.4%5.2%RF1.5%-1.0%4.3%-1.3%-1.1%1.0%STI2.2%0.9%3.0%-0

39、.4%-1.3%1.1%USB0.3%1.5%0.6%0.9%1.9%2.5%WFC-0.5%0.2%-0.7%-0.1%-0.2%0.7%Median (ex C, FITB, JPM)0.6%1.2%0.9%0.4%0.8%1.8%Vivek Juneja(1-212) 622-6465vivek.junejaNorth America Equity Research31 July 2019Net Interest Income Weak In 2Q Despite Benefit From Day Count·Net interest income was weak in 2Q

40、 as NIMs were pressured more than anticipated, which offset growth in earningassets and benefit from day count.·Net interest income declined at most of our banks, but grew qoq at Citi, Citizens, PNC, and US Bancorp (driven byasset growth and day count) Fifth Third was impacted by its acquisitio

41、n of MB Financial.·We expect net interest income to remain weak in the second half of 2019 and in 2020 due to further decline in NIMs,offset partly by asset growth.Table 8: Net Interest Income Was Weak in 2Q and Expected to Remain Weak in 2019 and 2020FTE net interest incomeSource: Company repo

42、rts. (1) Most of the qoq growth in 2Q19 reflects MBFI acquisition.6QoQ ChangeYoY Change3Q184Q181Q192Q1920182019E2020EBAC1.9%3.7%-1.0%-1.5%5.6%0.8%-1.2%BBT2.1%0.9%-0.5%-0.3%1.3%0.5%-0.1%C1.1%1.1%-1.4%1.5%2.8%4.2%6.4%CFG2.4%2.0%-0.9%0.5%8.1%2.5%-0.1%FITB (with MBFI) (1)2.2%3.6%0.1%15.1%7.9%16.8%3.9%JP

43、M3.0%3.2%0.6%-0.4%8.3%NANAPNC2.2%0.6%-0.3%0.9%5.2%1.9%-0.7%RF1.9%1.6%-1.0%-0.5%4.1%0.6%-0.1%STI1.6%2.3%-0.2%-0.6%5.1%2.4%-0.1%USB1.7%1.5%-1.4%1.4%3.6%2.1%0.3%WFC0.2%0.6%-2.6%-1.8%-0.8%-4.7%-3.2%Median (ex FITB, JPM)1.9%1.5%-1.0%-0.3%4.1%1.9%-0.1%Regionals Median (ex FITB)1.9%1.5%-0.9%-0.3%4.1%1.9%-0

44、.1%Vivek Juneja(1-212) 622-6465vivek.junejaNorth America Equity Research31 July 2019NIM Fell Sharply In 2Q, To Decline Further In Second Half 19 With Rate Cuts·NIM dropped sharply by 7bp qoq on average at our banks due to higher MBS premium amortization expense, furtherincreases in deposit cost

45、s, lower long term rates, and decline in Libor, which hurt loan yields.·We expect NIM to decline further in second half of 2019, with our expectation for two rate cuts and continued flat yieldcurve.·Fifth Third was our only bank to see NIM rise in 2Q, but it was primarily driven by the MB

46、Financial acquisition purchase accounting added 5bp to NIM, and MB Financials NIM was significantly above Fifth Third standalone NIM by about 40-60bp throughout 2018. Fifth Third also executed a large amount of receive-fixed swaps and floors in 4Q, whichprotected NIM.·US Bancorps NIM to decline

47、 more sharply in 3Q from a $5 bil increase in liquidity requirements and MBS premiumamortization.Table 9: NIM Down Sharply in 2Q by 7bp on Average and Will Remain Pressured in 2019FTE net interest marginSource: Company reports and J.P. Morgan estimates.7NIM2Q19NIM QoQ ChgNIM YoY Chg4Q181Q192Q1920162

48、01720182019E2020EBAC2.44%7 bp(1) bp(7) bp3 bp15 bp6 bp(5) bp(9) bpBBT3.42%2 bp2 bp(9) bp7 bp7 bp0 bp(7) bp(10) bpC2.67%1 bp1 bp(4) bp(5) bp(15) bp(4) bp1 bp(0) bpCFG3.21%3 bp0 bp(4) bp9 bp20 bp16 bp(4) bp(9) bpFITB (with MBFI)3.37%6 bp(1) bp9 bp1 bp17 bp17 bp10 bp(2) bpJPM2.49%2 bp2 bp(8) bp11 bp11

49、bp14 bpNANAPNC2.91%(3) bp2 bp(7) bp(2) bp15 bp10 bp(9) bp(10) bpRF3.45%5 bp(2) bp(8) bp0 bp19 bp17 bp(5) bp(1) bpSTI3.16%0 bp0 bp(11) bp9 bp14 bp13 bp(13) bp(13) bpUSB3.13%0 bp1 bp(3) bp(4) bp9 bp2 bp(3) bp(11) bpWFC2.82%0 bp(3) bp(9) bp(8) bp1 bp4 bp(15) bp(12) bpMedian (ex FITB, JPM)3.13%1 bp0 bp(

50、7) bp0 bp14 bp6 bp(5) bp(10) bpVivek Juneja(1-212) 622-6465vivek.junejaNorth America Equity Research31 July 2019Banks Guide For Net Interest Income Decline In 2H19, But Guidance Not Comparable·All our banks expect net interest income to be weak in 2H19, but guidance is not comparable as assumpt

51、ions for Fedrate cuts in 2019 vary between 1 and 3 cuts.·Wells Fargos outlook is weakest as net interest income is expected to decline about 5% in 2019, partly driven by sales ofpick-a-pay loans and growth in higher cost deposits.Table 10: All Our Banks Expect Net Interest Income and NIM to Be

52、WeakManagement guidanceSource: Company reports and management commentary.8Change in 2019 NIINet Interest Income GuidanceGuidanceNIM GuidanceRate Cut Assumptions for 2019BAC2019 NII up 1%, down from +3%previouslyLowerNA2 (also 1 in 2020)BBT3Q NII down $5-$10 mil qoq, 4Q NIIflat to down a little bitLo

53、wer3Q GAAP/Core NIM down 4-8bp qoq, (down 1-5bp ex loan sale), 4Q NIM flat to down slightly qoq2 (July, Oct)C2019 NII up $2 bil virtuallyunchangedIn the same rangeNA1CFG3Q NII broadly stable qoqLowerNA2 (July, Sept)FITBEx-PAA: 3Q NII +1% qoq, 2019 NII+15-16%)Reported: 2019 NII +16-17%UnchangedEx-PAA: 3Q NIM -3bp qoq, 2019 NIM+7bpReported: 3Q19 NIM -4bp3 (July, Sept, Dec)JPM2019 NII of $57.5 bil (was $55.7 in2018),