JPMorgan (JPM) and Goldman Sachs (GS) are scheduled to announce quarterly results before the open on July 13, while Wells Fargo (WFC) is expected to report earnings on July 14. What to watch for:
1. ENVIRONMENT TO BECOME MORE CHALLENGING: Ahead of quarterly results, Keefe Bruyette analyst David Konrad assumed coverage of JPMorgan and Goldman Sachs with Market Perform ratings and price targets of $167 and $391, respectively. Despite "recent volatility and uncertainty" regarding the macro reflation trade, the analyst remains constructive on large-cap banks due to expectations for the Federal Reserve to raise short-term rates. However, the current revenue environment may become more challenging for select banks who are benefiting from outsized growth in their bond portfolios, resulting in more of a stock pickers' market for the second phase of the bank rally, Konrad told investors in a research note. He also noted that JPMorgan is trading at "historical high" multiple and that he views the "normalization" of the capital markets as a headwind for Goldman.
Additionally, Konrad assumed coverage of Wells Fargo with an Outperform rating and $57 price target. The analyst argued that although a "more peaceful" Fed taper may be "less bad" for growth stocks, higher rates are a positive catalyst for banks. Konrad believes universal banks have "compelling transformational and restructuring stories expected to drive improved shareholder value."
2. WELLS SHUTS DOWN PERSONAL LINES OF CREDIT: Wells Fargo is shutting down all existing personal lines of credit in coming weeks and no longer offers the product, CNBC's Hugh Son reported, citing customer letters reviewed by the publication. "Wells Fargo recently reviewed its product offerings and decided to discontinue offering new Personal and Portfolio line of credit accounts and close all existing accounts," the bank said in the six-page letter. The move would let the bank focus on credit cards and personal loans, it said.
3. DIVIDEND RAISES: Last month, JPMorgan Chase's Board of Directors said it intends to increase the quarterly common stock dividend to $1.00 per share, up from the current 90c per share, for the third quarter of 2021. The bank's quarterly common stock dividends are subject to approval by the Board of Directors at the customary times that those dividends are declared.
Meanwhile, Wells Fargo also said it expects to increase its third quarter 2021 common stock dividend to 20c per share from 10c per share, subject to approval by the company's Board of Directors at its regularly scheduled meeting in July. Additionally, the company's capital plan includes common share repurchases of approximately $18B for the four-quarter period beginning third quarter 2021 through second quarter 2022.
Goldman Sachs also announced that it plans to increase its common stock dividend from $1.25 to $2.00 per share. "The planned increase in our dividend demonstrates our confidence in the increasing durability of our franchise revenues and is consistent with our capital management framework of prioritizing investment in our client franchise and returning excess capital to shareholders," CEO David Solomon said.
4. JPMORGAN OUTLOOK: During the company's last earnings call, JPMorgan said it sees full year 2021 net interest income, or NII, around $55B, card net charge offs, or NCOs, of 2.5%, plus or minus, and adjusted expense of $17B. The company said it also expects a pickup in consumer loan demand in the second half of year.
