大型銀行業(yè)：金融會議問題手冊

1、Global Research7 August 2020EquitiesLarge Cap BanksFinancial ServicesAmericasQuestion book: 2020 financials conferenceKey questions for banks attending UBS conference next weekThis document provides questions for large capitalization banks participating in UBS financials conference on August 11 and

2、12. JPMorgan, Bank of America, Wells Fargo, and Regions are attending.Saul MartinezAnalyst HYPERLINK mailto:saul.martinez saul.martinez+1-212-713 2491Robert PlacetAnalyst HYPERLINK mailto:rob.placet rob.placet+1-212-713 3735Frieda Gonzalez Associate Analyst HYPERLINK mailto:frieda.gonzalez frieda.go

3、nzalez+1-212-713 4086 HYPERLINK /investmentresearch /investmentresearchThis report has been prepared by UBS Securities LLC. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 16. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should

4、 be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Contents HYPERLINK l _TOC_250002 JPMorgan (Neutral, Price Target: $100) 3Bank of America (Neutra

5、l, Price Target: $23) 5 HYPERLINK l _TOC_250001 Wells Fargo (Sell, Price Target: $21) 8 HYPERLINK l _TOC_250000 Regions (Buy, Price Target: $13) 11JPMorgan (Neutral, Price Target: $100)Net interest incomeYour 2020 NII guidance of $56 bn suggests a quarterly run-rate of a bit less than $14 bn per qua

6、rter in 2H20. This represents only modest Q-Q declines from the $14 bn earned in 2Q20. Can you discuss why NII has been and should be so much more resilient than those of most peers? Can you discuss the major drivers of NII in 2H20 and beyond?Excluding market related NII, your NII fell 11.8% Q-Q/17.

7、9% Y-Y. NII in Consumer and Community Banking declined 11.5% Q-Q/13.6% Y-Y. Does a normalization of market related NII even at current levels suggest that NII and NIM pressure could be more material than expected in the coming quarters?Although you have indicated that you dont expect to profit from

8、the Paycheck Protection Program (PPP), accelerating income on forgiven loans can move the needle on NII over shorter time periods given your sizable$28-29 bn PPP balances. What are you assuming for PPP income in your NII expectations?As with many banks, ample deposit growth contributed to a sizable

9、increase in liquidity, notably cash held at the Fed. Your loan to deposit ratio is now close to 50%. How should we think about balance sheet dynamics in the coming quarters? Will deposits normalize to lower levels? Are you confident that loan growth can pick up? Is it feasible to begin to deploy cas

10、h balances in longer dated securities?Credit card balances fell 8% Q-Q on an EOP basis in 2Q20 within CCB. The recent Fed Loan Officer Survey also suggests that consumer loan demand remains weak. When do you think credit card loan balances can stabilize and begin to grow? Why?Non-interest incomeDuri

11、ng 2Q earnings, CEO Jamie Dimon mentioned trading revenue could be half of the 2Q20 level beginning in 3Q20, while investment banking revenue should fall as well. Do you have any additional thoughts on how sales and trading and investment banking could track in 2H20?Have you seen an increase in cred

12、it card spending? Has there been a slowdown in consumer spending in July? What are the volume and spending trends so far Q-Q or Y-Y?ExpensesThe $65 bn expense guidance in 2020 seems to suggest lower 2H20 vs 1H20, partly reflecting lower revenue expectations in 2H20 vs 1H20. However, maintaining the

13、full year target is impressive in light of strong markets revenue year to date and Covid-related expenses. Can you discuss how you are optimizing efficiency? What further opportunities are there to enhance efficiency?Credit qualityYour ACL ratio of 3.51% is at the higher end of peers. Even within le

14、nding categories, JPMorgan seems well reserved versus peers. How confident are you that reserve builds have peaked or are close to peaking? What would need to occur to see additional reserve builds in 3Q20 or 4Q20?To what extent do the higher reserve levels versus peers reflect conservatism? To what

15、 extent do they reflect higher risk? For example, your residential mortgage reserve ratio is materially higher than that of Bank of America. How should interpret this, in your view?Net charge offs have not risen materially even as ample loan loss reserves have been built? How do you see the glide pa

16、th for net charge offs in the coming quarters? When do you expect losses to emerge? Which portfolios are likely to see highest losses?Government stimulus measures and forbearance are helping prevent losses. Where do you come out on the debate as to whether these measures are just extending the loss

17、curve or are actually permanently bending it?Based on the 2Q20 10Q, you have about $45 bn of loans on deferral ($28 bn in consumer and $17 bn in wholesale). What proportion is asking for extensions? How are you accounting for these loans? Are you downgrading these clients to higher risk classificati

18、ons? How are you accounting for potentially uncollectible deferred interest?CapitalBased on the indicative SCB of 3.3%, your CET1 minimum increases to 11.3% from 10.5% (2Q20: 12.4%). Is it possible that you will need to re- think your optimal capital levels based on the results of the updated Covid-

19、related scenario analysis conducted by the Federal Reserve later this year? Do you think the GSIB surcharge will remain at 3.5%? Could it go to 4%?OtherThere is a debate about whether national banks have a structural advantage in the marketplace due to their vastly larger technology budgets than oth

20、er banks. Where do you weigh in on this? How and in which areas can technology drive a competitive advantage versus peers?StrategyHow has the pandemic impacted your thinking about strategy and operations? Has it revealed anything you feel needs to be improved, or highlighted sources of strengths? Ha

21、s it influenced your thinking about the strategic direction of the businesses?Asset and Wealth Management CEO Mary Erdoes mentioned at Investor Day that you consistently look at M&A opportunities across every line of the business. She also mentioned adjacent capabilities as opposed to scale. What ar

22、e the biggest opportunities to add to existing capabilities?Bank of America (Neutral, Price Target:$23)ProfitabilityOnce credit costs normalize, can you get back to double-digit ROEs and low- to mid-teen ROTCEs without the help of higher interest rates? How do you think about through-the-cycle profi

23、tability?Net interest incomeNII (FTE) fell 10.6% Q-Q in 2Q20 and is expected to fall another couple of hundred million in 3Q20. This suggests the exit rate 4Q20 NII will lead to additional declines in 2021. We forecast that NII (FTE) falls 3.8% in 2021, after declining an estimated 9.4% in 2020. But

24、 can you discuss the major drivers of NII beyond 3Q20? Do you see NII finding a floor in 3Q20 on a quarterly basis? What will need to happen to see NII growth on a quarterly basis?Although you have indicated that you dont expect to profit from the Paycheck Protection Program (PPP), it could have an

25、impact on certain line items. How should we think about forgiveness rates, the timing of forgiveness (3Q20-2Q21), and fee rates on PPP loans?Given the low rate environment, how should we think about the impact from premium amortization on NII in 2H20? Premium amortization was$300 mn higher this quar

26、ter due to lower rates and faster paydowns.Loan growthQ-Q loan balances excluding PPP loans fell 7.3% in 2Q on an end-period basis, mostly driven by commercial loans. Can you discuss the outlook for loan growth? For commercial loans, do you expect paydowns to continue while demand remains weak? For

27、consumer loans, do you expect mortgage balances to grow in 2H20? Can you discuss the outlook for card balances?DepositsTotal deposits grew almost 20% from year-end 2019 to June 2020, led by increases in non-interest-bearing deposits. Can you discuss the growth outlook for interest-bearing and non-in

28、terest-bearing deposits? Do you think deposit balances normalize to lower levels?Loan to deposit ratioThe loan to deposit ratio has decreased to below 60% in 2Q from 69% in 4Q19. Can you discuss possible paths for loan to deposit ratio?Credit qualityCan you provide an update on the deferral activity

29、? What proportion of your small business card and non-card loans has requested an extension on prior deferrals? How are you accounting for these loans? Are you downgrading commercial clients seeking extensions to higher risk classifications? How are you accounting for potentially uncollectible defer

30、red interest? Is it through loan loss reserves?While you have seemingly had more conservative credit risk standards than peers, your ACL ratio of 2.11% is lower than that of many peers, and your C&I and residential mortgage ALLL ratio are just 1.34% and 0.18%, respectively, well below those of peers

31、. Can you discuss why you feel these levels are appropriate? Are there idiosyncratic factors that help explain the comparatively low reserve ratios on some portfolios?Net charge offs have not risen materially even as ample loan loss reserves have been built? How do you see the glide path for net cha

32、rge offs in the coming quarters? When do you expect losses to emerge? Which portfolios are likely to see highest losses?Government stimulus measures and forbearance are helping prevent losses. Where do you come out on the debate as to whether these measures are just extending the loss curve or are a

33、ctually permanently bending it?Non-interest incomeBank of Americas service charges decreased 20% in 2Q20 from 4Q19 levels, largely impacted by service charges in consumer banking due to fee waivers and lower activity. Do you see a fundamental change in activity as consumers increase digital usage wh

34、ile reducing the need for cash? When will Bank of America resume charging fees that were waived during the pandemic?Trading revenue and investment banking both had a good quarter in 2Q. Going forward, should we expect trading revenue to come down closer to 2H19 levels? Is $1.5 bn/quarter a good run-

35、rate for investment banking fees, in your view?Have you seen an increase in credit card spending? Has there been a slowdown in consumer spending in July? What are the volume and spending trends so far Q-Q or Y-Y?ExpensesConsensus estimates have your annual expenses flattish at $53.5 bn from 2020-202

36、2. If revenue remains challenged, are there areas where you can optimize expenses? How likely is it that nominal dollar expenses fall from the current level?CEO Brian Moynihan mentioned that there are a lot of PPP costs against fees earned. These costs include 10,000 employees working on origination

37、s, 3,000 employees working on forgiveness, and outside consultants. Can you please help us parse through the operational costs associated with PPP?CapitalAs of 2Q20, the banks CET1 ratio stood at 11.4%, above the indicative minimum of 9.5%. Under what circumstances would you feel comfortable resumin

38、g share buybacks?Is it possible that you will need to re-think your optimal capital levels based on the results of the updated Covid-related scenario analysis conducted by you and the Federal Reserve later this year?Consumer and Small Business BankingHas the pandemic changed your thoughts about bran

39、ch and digital banking strategies? Do you think banks are likely to accelerate branch closures as the pandemic drags on?Consumer digital adoption has been trending up nicely. As of 2Q20, 85% of the deposit transactions were done digitally. 47% of total sales came from digital channels, up from 29% i

40、n 2Q19. Where do you see opportunities to further increase the percentage of digital sales? Can increases in digital sales drive revenue growth, or are they just a function of mix shift among channels?You have been spending $3 bn annually on new technology initiatives.Where are the key investment ar

41、eas? Can you talk about the potential business impact from these initiatives? 2) Where have you seen the most cost savings from past or ongoing technology initiatives? Can you help us to size the expense benefits?There is a debate that large banks are structurally advantaged due to large financial f

42、irepower in technology investment. What is your take on this debate?Wells Fargo (Sell, Price Target: $21)Profitability targetsAcknowledging that you are not providing longer-term profitability targets, how important is it to you to generate returns on equity/tangible equity that are comparable to th

43、ose of large banking peers? Do you think that meeting other stakeholder interests (regulators, communities, and employees) poses a long lasting constraint to profitability than for other large banks?Net interest incomeWhile most banks saw a decline in NII in 2Q, your decline was outsized (-13% Q-Q v

44、s. -3% on average, for banks we cover), reflecting a combination of growth constraints, hedge ineffectiveness, and premium amortization. How should we think about NII drivers in the coming quarters? Can you discuss outlooks for loan growth, deposit costs, and premium amortization? Could a reversal o

45、f hedge ineffectiveness benefit NII in the coming quarters? How should we think about the factors driving where on the continuum of the $41-$42 bn NII guidance youll end up?Cash and cash equivalents rose $110 bn in 2Q20. Are there opportunities to deploy excess liquidity into longer-dated securities

46、 and other interest earning assets? How do you see loan growth from here? Do you expect borrowers to remain risk averse? Can you discuss the outlooks for major segments: C&I, CRE, residential mortgage, home equity, other consumer loans?You are constrained from growing the balance due to the Feds ass

47、et cap. While in the past you have had some room to maneuver under the cap, in 2Q you took actions to limit loan and deposit growth in order to stay below the cap. Specifically, you shrank external repo and other financing as well as non-operational deposits with low liquidity value. As time goes on

48、, will the balance sheet limitations related to the asset cap become a greater hindrance to growth/profitability or is there still some flexibility within your asset/funding to run-off lower profitability categories?Interest bearing deposit costs declined 47 bps Q-Q in 2Q to 24 bps. Looking at indiv

49、idual deposit categories, while there appears to be further room to cut in certain smaller deposit types (time deposits of $87b at 1.04%, foreign deposits of $38b at 0.44%, etc.), their sizes are minor when compared to the other savings bucket (of $800b at just 16bps). How much more room do you have

50、 to reduce overall deposit costs? What is the realistic floor for overall deposit costs WFC (deposit costs bottomed at 11 bps in 2015)?ExpensesOn the earnings call, CEO Charlie Scharf highlighted that there is nothing structurally different about Wells Fargo that should prevent you from being as eff

51、icient as large bank peers. The math says you need to eliminate over $10b in expenses to bring the efficiency ratio down to peerlevels. However, $10b is a big number as it represents 18% of your cost base. Should we see this as simply a reference point, a target based on some level of analysis, or a

52、n aspirational goal?In the past, you have indicated that remediating multiple public enforcement actions limits your ability to optimize your cost structure in a material way (see our past research, management meeting highlights and limited line of sight on efficiency improvements, downgrade to neut

53、ral). Is this still the case? In what ways do remediating public enforcement actions limit your ability to cut costs?Building the right risk and control foundation is your top priority. Can you help frame how much in costs and personnel you have committed to the remediating public enforcement action

54、s? How have these costs trended in the recent past and what is the expectation for them going forward? How much bandwidth does the consent order take up of managements time/energy?Are you concerned about pushback from policymakers or the reputational blowback from cost reductions that lead to extens

55、ive reductions in headcount?You have indicated that Covid has accelerated your sense of urgency to optimize costs and will take actions in 2H20. How confident are you that expenses will fall in nominal dollar terms in 2021? Can you begin to see benefits accruing to the expense line in 2H20?Adjusting

56、 for non-recurring items and operating losses above the normalized run rate of $150 mn, we estimate operating expenses were a bit more than $13 bn/quarter in 1Q20 and 2Q20. How likely is it that run rate expenses will be lower than this in the coming quarters? Can this occur even in 3Q20 or 4Q20? Al

57、so, can you remind us why $150 mn is that right figure for normalized operating losses in a given quarter? It has not been at that level in quite some time.When asked on the call about the revenue side of the elevated efficiency ratio, CEO Charlie Scharf reiterated that Wells Fargo has meaningful co

58、st inefficiencies that need to be addressed. That said, at least some of the efficiency ratio difference versus peers comes from revenue pressures. In fact, 2017 revenue was close to $90b and it is now closer to $70 bn annually. However, core expenses remain at roughly $54 bn. Why have expenses not

59、declined even as you have exited businesses and centralized operations? How much have investments in control and compliance functions accounted for this discrepancy between falling revenue and stable expenses?Non-interest incomeNon-interest income had a number of moving parts that largely balanced o

60、ut (MSR write down, residential mortgage gain on sale, and equities gains) in 2Q20, but we estimate a core operating non-interest income figure of a bit under $8 bn in 2Q20. Is this a good run rate to use when forecasting 3Q20 and 4Q20? Why or why not?Can you go through the outlooks for your major f