Bank earnings to outline optimism for economic recovery in 2021

·Anchor/Reporter

January 14, 2021 at 5:26 AM·3 min read

The first earnings season of 2021 will kick off with big banks reporting on Friday, as JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) report earnings for the fourth quarter of 2020.

Analysts will be focused on guidance from the big banks, which will reveal the degree of optimism on Wall Street for the pace of recovery.

Surging virus cases and new shutdowns at the end of last year are likely to have weighed down on bank earnings in the fourth quarter, with KBW expecting an 8% year-over-year decline in earnings per share.

But with the vaccine rollout underway, banks are hoping that the first quarter of 2021 and beyond will prove to be a turning point.

“Relative stock performance will be less about the quarter and more about the outlook for credit recovery, [pre-tax, pre-provision] earnings, and capital management,” KBW bank analyst Brian Kleinhanzl wrote Jan. 8.

Bank stocks were battered by the coronavirus in 2020, as concerns over loan repayment pushed the largest firms to beef up their provisions for loan losses.

Although COVID-19 cases continue to break records nationwide, expectations for widespread vaccination have pushed bank stocks higher. Since the new year, shares of the four biggest banks (the three reporting on Friday plus Bank of America, which will report Tuesday) have all risen over 10%.

JPMorgan will be the first big bank to report fourth quarter 2020 earnings Friday, Jan. 15. REUTERS/Eduardo Munoz (UNITED STATES - Tags: BUSINESS SCIENCE TECHNOLOGY LOGO)

Deutsche Bank Research’s Matt O’Connor wrote Jan. 7 that the banks could see another 10% to 15% relative move higher if the recovery can prove that it can last through 2021 and beyond.

Gerard Cassidy, an analyst at RBC Capital Markets, told Yahoo Finance Wednesday that he also sees upside in bank stocks of about 20% to 25%.

“They still are not trading at levels that we would suggest would be fair value when you compare where they have traded historically over the last five years,” Cassidy said.

Boost from bond yields

The rally in bank stocks in January came alongside a bump higher in longer-term bond yields.

Since the new year, the yield on the 10-year U.S. Treasury rose as much as 27 basis points, to 1.18%. The 30-year U.S. Treasury yield similarly rose as much as 27 basis points, to 1.91%.

With short-term interest rates still pinned to near-zero by the Federal Reserve, banks that borrow short and lend long hope that higher longer-term rates will improve margins in 2021.

Net interest margins, a key measure of interest collected on loans minus interest paid on deposits, fell considerably over the course of 2020.

“The pressure on net interest margins could be alleviated should that yield continue to rise as the economy recovers in 2021,” Cassidy said.

RBC still projects net interest margins to decline by 3 basis points quarter-over-quarter, but the banks could offer guidance that projects an improved interest rate environment through 2021.

JPMorgan earnings are expected around 6:45 a.m. ET on Friday, with Citigroup and Wells Fargo expected to drop their earnings reports around 8:00 a.m. ET. Bank of America earnings are due around 6:45 a.m. ET on Tuesday, Jan. 19.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

Read the latest financial and business news from Yahoo Finance

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit.

Yahoo Finance
Stock market today: Dow, S&P 500, Nasdaq steady, bitcoin slumps after Christmas break
US stocks were set to open post-Christmas trading with a bit of a hangover.
AFP
India's former PM Manmohan Singh dies aged 92
Manmohan Singh, the former Indian prime minister whose economic reforms made his country a global powerhouse, has died at the age of 92, current leader Narendra Modi said.He was tapped in 1991 by then Congress prime minister P.V. Narasimha Rao to reel India back from the worst financial crisis in its modern history In his first term Singh steered the economy through a period of nine-percent growth, lending the country the international clout it had long sought.
USA TODAY
The bald eagle's soaring comeback: From near extinction to official US bird
The bald eagle, a symbol of the nation for over 200 years, returned from near extinction to become America's bird − officially − this week.
AFP
Azerbaijan believes missile downed plane, Russia warns against 'hypotheses'
The Kremlin on Thursday cautioned against "hypotheses" over the crash of an Azerbaijani plane heading for Russia, killing 38 people, which Azerbaijan officials reportedly believe was caused by a Russian surface-to-air missile.But several media outlets reported Thursday that Azerbaijani authorities believe the crash was caused by a Russian missile.
Associated Press
The US says it pushed retraction of a famine warning for north Gaza. Aid groups express concern.
A lead organization monitoring for food crises around the world withdrew a new report this week warning of imminent famine in north Gaza under what it called Israel's “near-total blockade,” after the U.S. asked for its retraction, U.S. officials told the Associated Press. The move follows public criticism of the report from the U.S. ambassador to Israel. A declaration of famine would be a great embarrassment for Israel, which has insisted that its 15-month war in Gaza is aimed against the Hamas militant group and not against its civilian population.
Reuters
Manmohan Singh, India's reluctant prime minister, dies aged 92
Described as a "reluctant king" in his first stint as prime minister, the quietly spoken Manmohan Singh was arguably one of India's most successful leaders. The first Sikh in office, Singh, 92, was being treated for age-related medical conditions and died after he was brought to hospital after a sudden loss of consciousness on Thursday. He is credited with steering India to unprecedented economic growth and lifting hundreds of millions out of dire poverty.
Associated Press
India's former prime minister Manmohan Singh, architect of economic reforms, dies aged 92
India’s former Prime Minister Manmohan Singh, widely regarded as the architect of India’s economic reform program and a landmark nuclear deal with the United States, has died. Singh was admitted to New Delhi’s All India Institute of Medical Sciences late Thursday after his health deteriorated due to a “sudden loss of consciousness at home,” the hospital said in a statement. Singh was being treated for “age-related medical conditions,” the statement said.
Yahoo News
What to do with your Christmas tree now that the holiday is over
Here's everything you can do — and shouldn't do — when it comes to getting rid of your Christmas tree after the holidays.
AFP
Finns probe ship from Russia for 'sabotage' of cables
Finnish authorities said Thursday they were investigating an oil tanker that sailed from a Russian port over the "sabotage" of a power cable linking Finland and Estonia that was damaged the previous day.- 'Something strange' - Police suspect that the oil tanker's anchor might have damaged the power cable.
CNN
Early indications suggest Russian anti-aircraft system may have downed Azerbaijani jet, US official says. Here’s what we know
Early indications suggest that a Russian anti-aircraft system may have downed an Azerbaijan Airlines jet on Wednesday, a US official told CNN Thursday as Azerbaijan held a day of mourning for the dozens of victims of the disaster.
Associated Press
Powerful thunderstorms rumble across Texas, delaying holiday travel
Some flights were delayed or canceled in Texas on Thursday after a line of thunderstorms started moving across parts of the state in a system the National Weather Service predicted could bring high winds, hail and possible tornadoes. Nearly 90 flights were delayed and more than two dozen cancelled at Dallas Fort Worth International Airport early Thursday. Delays and thunderstorm-related cancellations also were reported at Dallas' Love Field and George Bush Intercontinental Airport in Houston, according to FlightAware, an aviation company that tracks flights across the world.
CNN
Four babies die from hypothermia in Gaza, as Israel’s war pushes Palestinians into tent camps
A newborn baby died from the cold in a tent encampment in Al-Mawasi, in southern Gaza, highlighting the stark challenges to survival faced by Palestinian children displaced from their homes amid Israel’s ongoing assault on the strip.
CBS News
Storms, dense fog threaten holiday travel in parts of U.S.
Rain and high winds were expected roll through parts of Oregon and Washington, while fog settled over an area from Kansas City to Chicago.
Yahoo Finance
Mortgage rates rise again, finishing the year at 6.85% — just about the way they started
Mortgage rates ticked up again after the Fed revised rate-cutting expectations for 2025.
USA TODAY
She hoped to learn more about her enslaved ancestors. A trip South revealed hard truths.
Daunted by spotty record keeping and Black enslavement, a retiree traveled South in search of her family history
Associated Press
Average rate on a 30-year mortgage climbs to 6.85%, highest since July, as bond yields keep rising
The average rate on a 30-year mortgage in the U.S. rose for the second week in a row to its highest level since mid-July, reflecting a recent jump in the bond yields that lenders use as a guide to price home loans. The rate rose to 6.85% from 6.72% last week, mortgage buyer Freddie Mac said Thursday. One year ago, the rate on a 30-year mortgage averaged 6.61%.
NBC News
Moscow's 4 airports closed temporarily for unspecified security reasons
MOSCOW — Russian authorities on Thursday closed all four of Moscow’s airports, plus a fifth one in a city about 100 miles southwest of the country’s capital, citing unspecified safety concerns.
AFP
Oil leak in Peru tourist zone triggers 'environmental emergency'
Peru has declared an "environmental emergency" after an oil spill that triggered a clean-up operation on a stretch of northern coastline popular with tourists.The leak was detected last Friday on Las Capullanas beach when the crude oil was about to be loaded onto a tanker, the company said at the weekend without specifying the cause or amount of oil spilled.
CNN
Marianne Williamson announces run for DNC chair
Author and former presidential candidate Marianne Williamson announced Thursday she’s running to lead the Democratic National Committee.
CNN
Utah man triggers avalanche and saves brother buried under the snow
A man rescued his brother from a “large avalanche” he triggered while the pair were snowmobiling in Utah on Wednesday, authorities said.

Boost from bond yields

Latest Stories