US_Banks_Performance_Analysis
                     US Banks 
Performance (Q2 
2020)
Beats estimates albeit Main Street suffers
US Banks Performance: Stormy waters still on the horizon
• We analyzed the six largest banks’ performance in Q2 2020. The six banks selected were JP 
Morgan, Morgan Stanley, Goldman Sachs, Wells Fargo, Bank of America and Citigroup.
• US banks have been very prudent in terms of creating provisions for the expected losses while 
have seen a bonanza surge in non-fee incomes courtesy higher trading volumes (in part driven by 
more retail participation) and higher capital market issuances (thanks to the Fed!)
• The Fed has ventured into unchartered territories during the current crisis both in terms of the 
scale and scope of the response. That it will need to unwind the stimulus gradually is a given and 
there in lies the greatest uncertainty on how the post pandemic economy will look – how many 
businesses will survive, how many jobs will be regained or permanently lost. This will have a direct 
bearing on the banks’ loan portfolio
• With the increase in issuances and trading volumes tapering off, banks’ fortunes are more tied to 
loss realization on their lending portfolios
• A large proportion of lending is retail and high-yield nature, meaning there is a higher probability of 
default
• So far, the banks have not felt the impact of the economic slowdown – although ~18 mn Americans 
were unemployed at the end of June 2020, defaults have been low thanks to the one-time increase 
in the stimulus cheques among other unemployment benefits
• The banks are treading in unchartered waters. In a regular economic shock, unemployment and 
delinquencies rise as GDP, income, savings and asset prices go down. However, in the current 
crisis, although unemployment has increased and GDP has shrunk, incomes and asset prices have 
held up. 
• Banks’ fortunes appear to be closely tied with the infection curve, Fed stimulus and its eventual 
unwinding
This phenomenon is unique to US as large European counterparts continue to struggle
• European banks have not been as cautious as their US counterparts in terms of provisioning 
with an average provisioning of just under 1% compared to more than 2% of the average for 
the six banks analyzed
• Despite that, they have shown poorer performance in Q2 2020 compared to the US banks. 
HSBC, Europe’s largest bank, reported 88% decline in pre-tax profits in Q2 while other large 
lenders – Deutsche Bank, Santander and Société Générale have reported losses
• European banks’ lower provisions is also driven in part by their weaker balance sheets. 
According to Oliver Wyman, European banks’ return on tangible equity averaged 6% at the 
start of the year, compared to 11.4% for the six banks analyzed
• On the flip-side, majority of European lending is collateral-based, which implies that defaults 
are likely to be lower with a higher recovery rate
• The European lenders did see a pick-up in trading revenues (BNP Paribas reported 154% jump 
in trading fees in Q2 2020), like their US counterparts but the Investment Banking activity in 
Europe was subdued
• US banks face more regulatory hurdles, for instance ban on share buybacks and more prudent 
accounting rules (American banks are required to create expected provisions for all loans over 
their lifetimes while European banks need to create provisions for lifetime losses only for loans 
closest to default)
• However, despite these hurdles and the headwinds from the unrelenting pandemic infections 
and its impact on the economy, the US banks are much better placed than their European 
counterparts
Net profits of top banks lower but beat estimates in Q2 2020
Aggregate profits of top six banks analyzed reached USD 10.8 bn in Q2 2020, down 16% from the 
previous quarter
Exhibit 1: Aggregate Income before Discontinued Operations & Extraordinary 
Items (USD billion) 
 35,000 10.0%
 30,000 0.0%
 25,000 -10.0%
 20,000 -20.0%
 15,000 -30.0%
 10,000 -40.0%
 5,000 -50.0%
 - -60.0%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Bank profit s (USD mn) QoQ change (RHS)
Source: Refinitiv
JP Morgan, Morgan Stanley & BofA reported a strong quarter
Exhibit 2: Individual banks’ profit performance (USD billion)
JP Morgan Morgan Stanley
 12,000 80.0%  3,500 100.0%
60.0%
 10,000  3,000 80.0%
40.0%
 2,500 60.0%
 8,000
20.0%
 2,000 40.0%
 6,000 0.0%
 1,500 20.0%
-20.0%
 4,000
-40.0%  1,000 0.0%
 2,000
-60.0%  500 -20.0%
 - -80.0%  - -40.0%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Bank profit s (USD mn) QoQ change Bank profit s (USD mn) QoQ change
Bank of America Goldman Sachs
 8,000 30.0%  3,000 20.0%
 7,000 20.0% 10.0%
 2,500 0.0%
 6,000 10.0%
 2,000 -10.0%
 5,000 0.0% -20.0%
 4,000 -10.0%  1,500 -30.0%
 3,000 -20.0% -40.0%
 1,000
-50.0%
 2,000 -30.0%
 500 -60.0%
 1,000 -40.0% -70.0%
 - -50.0%  - -80.0%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Bank profit s (USD mn) QoQ change Bank profits (USD mn) QoQ change
Source: Refinitiv
But Goldman Sachs, Citigroup & Wells Fargo lagged behind
• JP Morgan and Morgan Stanley saw a huge surge in Q2 income
• Surprisingly all banks baring Wells Fargo reported positive earnings despite current poor economic 
conditions
• Shrinking profits were expected as banks are forecast to create more provisions due to rising 
delinquencies
• However, despite aggressive loan loss provisions, the results were unexpectedly positive
Exhibit 3: Individual banks’ profit performance (USD billion)
Citigroup Wells Fargo
 6,000 10.0%  7,000 100.0%
 6,000
 5,000 0.0% 0.0%
 5,000
-10.0%
 4,000  4,000 -100.0%
-20.0%  3,000
 3,000 -200.0%
-30.0%  2,000
 2,000  1,000
-300.0%
-40.0%
 - -400.0%
 1,000 -50.0%  (1,000) Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
-500.0%
 - -60.0%  (2,000)
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020  (3,000) -600.0%
Bank profit s (USD mn) QoQ change Bank profit s (USD mn) QoQ change
Source: Refinitiv
Coronavirus cases continue to surge
Exhibit 4: Coronavirus daily new cases in the US
Source: Worldometers/ 
Coronavirus
The economic slump can be witnessed in rising unemployment
Although it is down from the peak in April 2020, it still hovers over 10% in July 2020
Exhibit 5: Unemployment rate (Aug 2019 – July 2020) 
14.7%
13.3%
11.1%
10.2%
4.4%
3.7% 3.5% 3.6% 3.5% 3.5% 3.6% 3.5%
Source: US Labor 
Department
The economic slowdown has led to higher loan loss provisioning by the banks
Exhibit 6: Average Loan Loss Provisions as % of Loans  by banks (Q2 2019 – Q2 
2020)
2.1%
1.5%
1.0% 1.0% 1.0%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Loan Loss Provisions (as % of Loans)
Source: Refinitiv
With all banks increasing provisioning in Q1 and Q2 2020
Exhibit 7: Individual banks’ loan loss provisions
JP Morgan Morgan Stanley
2.2%
0.7%
1.7%
0.5%
1.1% 1.1% 1.1%
0.3% 0.3%0.3%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Bank of America Goldman Sachs
2.5% 3.5%
3.2%
3.0%
2.0%
1.9%
2.5%
1.5% 2.2%1.5% 2.0%
1.0% 1.5%1.0% 1.0% 1.0% 1.4%
1.5%
1.3%
1.0%
0.5%
0.5%
0.0% 0.0%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Source: Refinitiv
Reflecting the conservative approach by banks of the economic fallout on their loan book
• All six banks have increased loan-loss provisions in 2020 ranging from 3.2% for Goldman Sachs to 
0.7% for Morgan Stanley
• At the beginning of the year, the average provisions stood at 1%, compared to 2.1% in the latest 
quarter reflecting banks’ prudent assumptions
• At a LLP of 1.6% in Q2 2020, Wells Fargo maybe exposed to more downside risks since it has a 
bigger commercial lending unit than the other banks and may not have been as prudent as other 
lenders
Exhibit 8: Individual banks’ loan loss provisions
Citigroup Wells Fargo
2.7% 1.6%
2.1%
1.0%
1.4% 1.4% 1.5% 0.9%
0.9% 0.9%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Source: Refinitiv
Volatility has increased
Exhibit 9: VIX (July 2019 – July 2020)
 90
 80
 70
 60
 50
 40
 30
 20
 10
 -
9 9 9 9 9 9 0 0 0 0 0 0
01
0
2 20
1 01 01 01 01 02 02 02 02 02 02 02
l - g- p-
2 t-2 -2 -2 -
2
v c -
2
n b r-
2
r-2 y-
2 -2 2
a n l-
1-
Ju u Se OcA No
e a e
- - - - -D 1-
J -F -M -A
p a
M -J
u -Ju
0 1 01 01 1
1 1
0 0 0
1 0 01 1 -01 0 01 0 0
Source: CBOE Global 
Markets
Leading to higher trading volumes
As volatility increased retail and corporate investors looked to reposition their 
portfolios
Exhibit 10: Trading volumes in USD bn (July 2019 – July 2020)
700 50%
600 40%
30%
500
20%
400 10%
300 0%
-10%
200
-20%
100 -30%
0 -40%
Trading volumes (USD bn) MoM change (RHS)
Source: CBOE Global 
Markets
Combined with higher Equity Issuances
Companies have taken advantage advantage of the buoyant capital markets to issue 
more equity for stronger capitalization. Some of these were used to repay drawdowns 
taken at the beginning of the crisis
Exhibit 11: New Equity Issuances(June 2019 – July 2020) 
80.0 500%
70.0 400%
60.0
300%
50.0
200%
40.0
100%
30.0
0%
20.0
10.0 -100%
0.0 -200%
Equity issuances (in USD bn) MoM change (RHS)
Source: Securities Industry and Financial Markets 
Association
And higher corporate debt issuances
• Taking advantage of low interest rates and government support, corporates 
issued loans at an unprecedented rate during the pandemic
• However, the issuances appear to be tapering off since July
Exhibit 12: Corporate Debt Issuances (June 2019 – July 2020) 
400.0 350%
350.0 300%
300.0 250%
200%
250.0
150%
200.0
100%
150.0
50%
100.0 0%
50.0 -50%
0.0 -100%
Corporate debt issuances (USD bn) MoM change
Source: Securities Industry and Financial Markets 
Association
Higher trading volume and issuances have led to higher fee-based income for banks, 
offsetting the rising LLPs
Fee-based income for the six banks analyzed touched a record USD48.9 bn in Q2 
2020, up 13.5%on the quarter and 14.3% yoy
Exhibit 13: Banks’ aggregate fee based income (Q2 2019 – Q2 2020) 
 50,000 16.0%
14.0%
 48,000
12.0%
10.0%
 46,000
8.0%
 44,000 6.0%
4.0%
 42,000
2.0%
0.0%
 40,000
-2.0%
 38,000 -4.0%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Banks fee-based income (USD mn) QoQ change
Source: Refinitiv
Led by JP Morgan and Wells Fargo
Exhibit 14: Individual banks’ aggregate fee-based income (USD billion)
JP Morgan Wells Fargo
 25,000 45.0%  10,000 40.0%
40.0%  9,000 30.0%
 20,000 35.0%  8,000
30.0% 20.0% 7,000
25.0%
 15,000  6,000 10.0%
20.0%
 5,000 0.0%
15.0%
 10,000  4,000
10.0% -10.0%
5.0%  3,000 -20.0%
 5,000 0.0%  2,000
-5.0%  1,000
-30.0%
 - -10.0%  - -40.0%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Banks fee-based income (USD mn) QoQ change Banks fee-based income (USD mn) QoQ change
Bank of America Citigroup
 10,200 12.0%  10,000 50.0%
 10,000 10.0%  9,000 40.0%
 9,800 8.0%  8,000
30.0%
 9,600 6.0%  7,000
 6,000
 9,400 4.0% 20.0%
 5,000
 9,200 2.0%
 4,000 10.0%
 9,000 0.0%
 3,000 0.0%
 8,800 -2.0%  2,000
 8,600 -4.0% -10.0% 1,000
 8,400 -6.0%  - -20.0%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Banks fee-based income (USD mn) QoQ change Banks fee-based income (USD mn) QoQ change
Source: Refinitiv
Goldman Sachs is the sole outlier
• More than 90% of the increase in fee-based income is driven by JP Morgan alone
• Wells Fargo, although it has a smaller Investment Banking and Asset Management divisions, also 
saw an increase in Q2
• Bank of America, has maintained fee-based income at between USD9 and 10 bn since the past six 
quarters
• Citigroup clocked USD18 bn in fee-based income in the first half of 2020, which is two-thirds of its 
entire fee-based income for 2019
• While Morgan Stanley didn’t see a significant surge, it too has not witnessed any decline in fee-
baEsexdh iibnicto 1m5e:  iInn tdhiev ipdausat ls bixa qnukasr’t eargsgregate fee-based income (USD billion)
Morgan Stanley Goldman Sachs
 4,100 8.0%  60 600.0%
 4,000 6.0%  40 500.0%
4.0%  20
 3,900 400.0%
2.0%  -
 3,800 0.0%  (20) Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
300.0%
 3,700 -2.0%  (40) 200.0%
 3,600 -4.0%  (60) 100.0%
-6.0%  (80)
 3,500 0.0%
-8.0%  (100)
 3,400 -100.0%-10.0%  (120)
 3,300 -12.0%  (140) -200.0%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020  (160) -300.0%
Banks fee-based income (USD mn) QoQ change Banks fee-based income (USD mn) QoQ change
Source: Refinitiv
Banks are in a strong position reflected in their core capital ratios
Exhibit 16: Banks’ average core capital - Tier 1 ratio  (Q2 2019 – Q2 2020) 
13.4%
13.1% 13.2%
12.7%
12.2%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Source: Refinitiv
And declining but respectable Return on Equities
Exhibit 17: Banks’ average ROE (Aug 2019 – July 2020) 
11.6% 11.4%
11.0%
9.5%
7.5%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Source: Refinitiv
JP Morgan and Morgan Stanley look strongest
Exhibit 18: Individual banks’ ROE and Core Capital ratios
Core Capital ratios Return on Equity
JP Morgan JP Morgan
13.4%
14.9%
13.2% 13.8% 14.1%
13.1% 13.1%
12.2%
9.9%
12.3%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Morgan Stanley Morgan Stanley
16.9%
16.7%
16.6% 11.7%16.5% 11.6%
10.8%
10.4%
8.8%
15.2%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Source: Refinitiv
Wells Fargo has seen sharp dip in profitability but looks well capitalized
Exhibit 20: Individual banks’ ROE and Core Capital ratios
Core Capital ratios Return on Equity
Wells Fargo Wells Fargo
12.6% 12.8%
12.2%
10.6%
11.9%
11.4% 7.4%
11.3%
11.1%
2.4%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Bank of America Bank of America
12.0% 11.4%
10.9% 10.7%
11.7% 9.3%
11.6%
11.5% 7.7%
11.1%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Source: Refinitiv
Citigroup and Goldman Sachs have strong CAR despite declining profits
Exhibit 21: Individual banks’ ROE and Core Capital ratios
Core Capital ratios Return on Equity
Citigroup Citigroup
12.5% 10.3%9.8%
9.4% 9.1%
12.1% 12.1%
7.2%
11.6%
11.2%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Goldman Sachs Goldman Sachs
14.0%
13.7%
11.2%
13.5%
13.5% 13.4% 10.2% 10.0%
8.5%
13.0%
12.5% 12.3% 6.1%
12.0% 11.9%
11.5%
11.0%
Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Source: Refinitiv
About Equinox Research
Established in 2015, Equinox constantly strives to deliver best-
in-class, customized research solutions to clients globally. Our 
service has helped clients improve research content, save 
costs and meet deadlines.  We have successfully delivered 
projects across various sectors and geographies. Contact us
India office:
Equity 
Research Unit 811, B Wing, Lodha 
Supremus,
Macro Fixed Wagle Estate, Mumbai,
Research Income Maharashtra, India 400604Research
Contact:
www.equinoxedge.com
[email protected]
Data ESG 
Analytics Research
Research Business 
support and 
services market Research
IB 
Research