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Analysis of Q4 2009 Results for Major U.S. Banks

2010-03-04Daniel Lee

목차
요약
Overview

Earnings for the top 6 U.S. banks were strong in 2009, but weakened in Q4

The top 6 U.S. banks recovered strongly in 2009 on the back of high trading and IB revenues in Q2~Q3. However, their earnings weakened somewhat in Q4 as government support measures began to be rolled back and capital market conditions gradually normalized.


Profitability

Profitability weakened somewhat in Q4 as market conditions normalized

Profitability among the top banks diverged in Q4 with JPMC, Wells Fargo, and Goldman Sachs recording satisfactory earnings and Citigroup and BoA recording net losses.
[Trading] Lower revenues due to seasonal decline in volume and contracting spreads.
[IB] Income increased due to higher equity underwriting and M&A advisory fees.
[Interest Income] Remained flat due to loan contraction and asset quality deterioration.


Asset Quality

Loan losses are stabilizing, but it is too soon to call a sustainable recovery

Credit card charge-offs remain high but were generally flat QoQ as the unemployment
rate began to decline.
Home mortgages charge-offs began to decline for Citigroup and BoA, but home prices recently began to fall once more, which may delay the recovery in this segment.
Commercial mortgages are likely to deteriorate further since prices could continue to fall and many borrowers will need to refinance in the next few years.


Regulatory Reform

Proposed regulatory reforms would be negative for banks' profitability, but the timing
remains uncertain

New accounting rules that take effect in 2010 will result in increases in asset size as off-balance sheet assets are consolidated, and the use of securitization and the 'originate-to-distribute' business model will be curtailed.
If implemented, the Obama administration's 'Financial Crisis Responsibility Fee' will lower banks' profitability. Banks with a high reliance on investment banking or overseas deposits will be affected more than those that focus on domestic deposit-based lending.
The 'Volcker Rule' would sharply limit banks' business activities and lower the profitability of the largest banks. However, it remains uncertain if and when this may be implemented.


Outlook

Earnings for the top 6 U.S. banks are likely to weaken in 2010

Revenue generation is likely to weaken since normalization of the capital markets will make outsized trading profits unlikely and interest income remains weak.
Although the timing and final form of reform proposals is uncertain, regulations are certain to be tightened, which will hamper profitability for the major banks.
The regulatory and operating environment is changing drastically, and each of the top
banks is adapting with a different business strategy. As a result, their performance is likely to continue to diverge.