U.S. Bank Outlook 2021: Picking Up The Pieces And Moving On - Stuart Plesser Brendan Browne Devi Aurora - S&P Global
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U.S. Bank Outlook 2021: Stuart Plesser
Brendan Browne
Picking Up The Pieces And Moving On
Devi Aurora
January 13, 2020
U.S. Bank Outlook 2021 | Contents Key Takeaways 3 Key Risks 4 Credit Conditions 5 U.S. Elections Impact 6 Ratings Distribution 7 2021 Forecast 9 Profitability 10 Allowances and Asset Quality 13 Commercial Real Estate, Energy, And Consumers 18 Capital Ratios 24 Deposits 27 LIBOR 28 Mergers and Acquisitions 29 Digitization 30 Subgroups and Related Research 31
Key Takeaways
Key Expectations
– Bank earnings will improve on lower credit loss provisions, although pandemic-related asset quality challenges and decades-low net
interest margins will keep profitability ratios below 2019 levels.
– The recently passed $900 billion stimulus bill, continued economic growth, and vaccine distribution will keep credit losses from rising
as high as we had anticipated earlier in the pandemic.
– Loan charge-offs triggered by the pandemic will move toward our updated estimate for the U.S. banking system of 2.2% rather than
our prior 3% estimate.
– With provisions, which equated to about 1.2% of loans in the first three quarters of 2020, falling to 1% or less of loans in 2021,
allowances for credit losses will shrink.
– The Biden Administration and a Democrat-controlled Congress could push for more stimulus--which may benefit the economy and
bank asset quality--but also higher corporate taxes and tougher regulatory and legal enforcement, which could pose risks for banks.
– Capital and liquidity will remain in good shape. However, regulatory capital ratios, which rose in 2020 in part due to restrictions on
shareholder payouts, will likely decline with the easing of those restrictions.
Key Assumptions
– U.S. real GDP will rebound at a modest 4.2% in 2021 after an estimated 3.9% contraction in 2020.
– GDP will reach its pre-pandemic level sometime in 2021, but unemployment will remain above pre-pandemic levels until after 2023.
3Key Risks
A further decline in net
A stalling of the economic A downturn in commercial interest income due to
A slower-than-expected
rebound amid a sharp rise real estate (CRE) due to additional pressure from
distribution of the vaccine
in coronavirus cases secular changes low rates or lackluster loan
growth
A sharper-than-expected
decline in capital related to A failure to adequately Unexpected changes in
An inability of many banks
an easing of restrictions on prepare for the end of regulation, enforcement, or
to keep up with fintech
payouts, mergers, asset LIBOR in June 2023 tax policy
growth or other factorsCredit Conditions | North America
S&P Global U.S. Economic Forecast Overview
– We expect the U.S. economy to have
contracted 3.9% in 2020 with downside risk
to our forecasted 4.2% recovery in 2021.
– We expect real GDP to return to precrisis
levels around third-quarter 2021, assuming
no further stimulus beyond the recent $900
billion bill.
– The unemployment rate won't reach
precrisis levels until 2024.
– We expect the benchmark federal funds rate
to remain at 0% until 2023.
Note: All percentages are annual averages, unless otherwise noted. Core CPI is consumer price index excluding energy and food
components. f--forecast. Data as of Dec 2, 2020. Sources: BEA, BLS, The Federal Reserve, Oxford Economics, and S&P Global Economics
Forecasts.
5What The 2020 U.S. Elections Could Mean For Banks
– Democrat control of the Presidency and both houses of Congress likely increases the odds of more fiscal stimulus,
a higher corporate tax rate, and tougher regulatory and legal enforcement.
Direction of change
(somewhat worse versus
somewhat better for banks)
Tax policy
Fiscal stimulus / PPP
Prudential regulation
Regulatory / legal enforcement
Fintechs
Source: S&P Global RatingsCurrent U.S. Bank Ratings Distribution
Holding Company Rating Distribution Operating Bank Rating Distribution
12/31/2020 12/31/2019 12/31/2020 12/31/2019
30% 25%
25% 20%
20%
15%
15%
10%
10%
5% 5%
0% 0%
AA-
B-
AAA
AA+
A-
BB-
B+
B
AA
A+
CCC+
A
BBB-
BB+
BB
BBB+
BBB
B-
BB-
B+
B
AA-
AAA
AA+
A-
BBB-
BB+
BB
CCC+
AA
A+
BBB+
BBB
A
Note: Includes Puerto Rican banks. Data as of Dec 31, 2020. Source: S&P Global Ratings.
7Current U.S. Bank Outlooks Distribution
Holding Company Outlook Distribution Operating Bank Outlook Distribution
Positive Stable Negative Positive Stable Negative
0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%
Money Center Banks 4 Money Center Banks 4
Regional Banks 3 23 20 Regional Banks 3 27 24
Trust Banks 3 Trust Banks 3
Broker Dealers 2 Broker Dealers 2
Total HoldCo Ratings 3 31 21 Total OpCo Ratings 3 36 24
The three entities on positive have ratings on CreditWatch with positive implications. Money Center Banks--Wells Fargo, Bank of America, Citigroup, JPMorgan. Broker Dealers--Morgan Stanley, Goldman Sachs.
Trust Banks--Bank of New York Mellon, Northern Trust, State Street. Note: Includes Puerto Rican banks. Data as of Dec 31, 2020. Source: S&P Global Ratings.
82021 Forecast | Hinging On Pandemic Control
Worsening Neutral Improving
Ultralow interest rates will continue to hurt spread income with margins near multidecade lows with some offset from the recent
yield curve steepening. Loan growth has recently been tepid—with consumers lowering leverage and commercial borrowers turning
Revenues
to the capital markets—and may only partially offset the pressure of low rates. A drop from 2020’s elevated revenues from capital
markets and mortgage activity could lead to an overall drop in fees.
Expenses will remain in sharp focus. Banks will manage costs by redeploying personnel, consolidating branches, containing head
Expenses count, and growing digitization, but rising servicing expenses will somewhat offset this. We expect positive operating leverage will
remain a challenge for many banks.
While banks are likely to report mediocre profitability, they should see somewhat better earnings than in 2020. We expect provisions
Profitability to decline but remain higher than in 2019. Allowances, which surged in the first half of 2020, should begin to abate. However, revenue
pressure will limit returns on equity to the single digits.
Although banks have seen drops in loans on forbearance, certain loan classes remain under asset quality pressure and we expect
Credit quality pandemic-related charge-offs to rise toward 2% (taken cumulatively in 2020 and 2021). The strength of the economy and the
effectiveness of government stimulus will greatly influence that ratio.
Banks have maintained or improved upon the good regulatory capital ratios they entered the pandemic with due in part to
Capital restrictions on payouts and a delay of the impact of CECL (current expected credit losses) regulation. However, ratios should decline
somewhat due to the Fed’s easing of payout restrictions beginning in 2021.
Extraordinary expansion of the Fed’s balance sheet after the onset of the pandemic has once again lowered deposit costs, which will
Funding & liquidity likely persist. Liquidity for most banks is likely to remain robust, aided by significant deposit inflows on the heels of the Fed's
massive quantitative easing measures.
9Bank Profitability To Improve But Remain Weaker Than In 2019
– Bank profits are likely to rise meaningfully on a drop in provisions. However, provisions should remain higher than in 2019.
– Low rates will also continue to weigh on net interest margins and limit any rebound in preprovision net revenue (PPNR).
– We expect banks to earn a return on average equity of around 9% and 10% in 2021 and 2022.
All FDIC-Insured Banks: Historical and Forecasted Performance
PPNR Provisions for Loan Losses Net Income ROAE (right axis)
400 12%
350
10%
300
8%
($ bil)
250
200 6%
150
4%
100
2%
50
0 0%
2016 2017 2018 2019 2020E 2021E 2022E
Source: FDIC data.
Copyright © 2018 by Standard & Poor’s Financial Services LLC. All rights reserved.
10The Lowest NIM In Decades Will Weigh On PPNR And Profitability
Effective Federal Funds, 3-Month LIBOR, And 10- year Treasury
Median NIM Of Rated Banks
Rates
Effective Federal Funds Rate, Percent, Monthly, Not Seasonally Adjusted Regionals Money Center
10-Year Treasury Minus 2-Year Treasury, Constant Maturity
3-Month LIBOR based on U.S. Dollar
3.0% 4.0%
3.48% 3.41% 3.40% 3.37%
3.5% 3.27% 3.23%
2.0% 3.02% 2.91%
3.0%
2.50% 2.46% 2.43% 2.40%
2.37% 2.27%
1.0% 2.5% 2.08% 1.97%
2.0%
0.0%
1.5%
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
Yields and Costs: All Commercial Banks
3Q19 4Q19 1Q20 2Q20 3Q20
6.0 5.42 5.26
5.05
4.40 4.32 4.25 4.07
3.81
4.0 3.06 2.84 3.25 3.20 3.09
2.68 2.57
2.0 1.19 1.03 1.37 1.19
0.83 0.98
0.43 0.32 0.53 0.40
0.0
Average Loans & Leases Average Earning Assets Average Interest-Bearing Deposits Average Interest-Bearing Liabilities Net Interest Margin
Source: S&P Global Ratings; Company filings; FDIC; Regulatory filings; St. Louis Fed Economic Database.
11Modest Loan Growth May Also Limit Earnings Improvement
– Consumers may continue to pay down or limit credit card debt, and commercial borrowers may avoid drawing more on bank lines until the
pandemic abates and the economy shows more signs of strength.
– Banks may again increase PPP lending following the passage of the December stimulus bill, but those loans will not materially drive
earnings or remain outstanding for more than a year.
Index of Bank Loan Growth
4Q19 = 100 Commercial CRE Total Res real estate Consumer Commercial ex-PPP
115
112 115
Commercial, 111
110
104 105
105 CRE, 104
102 Total, 104
100 103
101
100 Res real estate, 100
100 100
Commercial ex-PPP, 97
95 96 93
Consumer, 93
90
Source: S&P Global Ratings; S&P Market Intelligence; Call report data. Note: Commercial loans includes C&I, owner-occupied CRE loans, loans to banks and nondepository financial institutions, leases, and agriculture
production loans on schedule RC-C Part I of the call report. Assumes banks include PPP loans in those commercial loans. CRE includes non-owner-occupied CRE, construction, and multifamily loans.
12Allowances Should Fall As The Odds Of Severe Losses Have Dropped
The Path Of The Allowance For Loan Losses (ALL) for FDIC-Insured Banks: S&P Global
Ratings Base Case
350 2.5% – We now expect pandemic-related loan
charge-offs, absorbed mostly in 2020 and
300 2021, for all Federal Deposit Insurance Corp.
2.24% 2.0%
(Allowance for loan losses / loans)
43 (FDIC)-insured banks of slightly more than
(ALL, provisions, NCOs, $ bil.)
250
2%, or about one-third of the level the Fed’s
129 forecasts in its severely adverse scenario.
1.5%
200
1.51% 1.51% – We lowered that estimate from about 3%
150 184 because most asset quality metrics have
1.18% 34 1.0%
244
held relatively stable, loans on forbearance
104 have dropped sharply, and vaccine
100
164
0.5%
distribution has begun. However, we have
124 124
50 maintained a higher loss estimate for CRE.
– At a roughly 2% loss rate, we believe banks
0 0.0% would be more than halfway done with
ALL: 4Q19 ALL + day 1 Provisions, NCOs, 3Q ALL: 3Q20 Estimated Additional ALL, post
CECL 3Q YTD YTD pandemic required pandemic pandemic provisions and likely to reduce
adjustment remaining provisions
NCOs
their allowances for loan losses (ALL).
Based on estimated pandemic net charge-offs (NCOs) and provisions.
– Still, provisions should remain higher than
Light blue = ALL; Dark Blue = Increase to ALL; Yellow = decrease to ALL; Pink= ALL/loans they were in 2019.
Source: S&P Global Ratings.
13A Drop In Deferrals Has Supported A Less Pessimistic Outlook
– A drop in the median deferral rate on loans of rated banks in third-quarter 2020 to about 2.5% from about 8% in the second quarter likely
means consumer loan losses will not rise as sharply as feared earlier in the pandemic.
– The December stimulus bill should also limit consumer losses.
– Still, if the economy performs poorly, borrowers who have exited forbearance may face new stress.
2020 Q2 Deferral Rate Distribution 2020 Q3 Deferral Rate Distribution
Box-and-whisker plot:
Upper point of whisker: Highest value,
exclusive of outliers
Upper edge of box: 3rd Quartile value
Mark in box: Median
Lower edge of box: 1st Quartile value
Lower point of whisker: Lowest value,
exclusive of outliers
Source: Earnings releases or 10-Qs. Dataset includes S&P rated US bank universe, excluding monolines, broker dealers, trust banks; not every bank discloses each item,
and disclosure may not be in exact classification; Consumer includes Residential Mortgage; Wholesale/Commercial includes CRE and C&I.)
14Most Asset Quality Measures Stable, But Criticized Loans Rising
– Government support measures, good third-quarter economic growth, and deferrals have mitigated deterioration in many asset quality
metrics.
– Still, commercial and industrial (C&I) and CRE loans are showing signs of stress as reflected in increased criticized loans. We expect
commercial loans to account for many of 2021’s net charge-offs (NCOs).
Asset Quality Of U.S. Commercial Banks
Nonperfoming Loans Net Chargeoffs Delinquencies (30-90+) Criticized Loans
4.0
3.5 3.58
3.0
2.5
(%)
2.0
1.5
1.0 0.84
0.5 0.64
0.45
0.0
Q4 '18 Q1 '19 Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20 Q3 '20
All U.S. Commercial Banks results estimated by aggregating Call Report data. Criticized loans are for 40 rated banks that have consistently reported such data for all reporting periods in the chart. Source: S&P Global
Ratings; S&P Global Market Intelligence; Regulatory filings
15A Lens On Possible Loss Rates
- At our roughly 2% pandemic projection, loan losses would be material but far lower than in the global financial crisis and what the Fed
projects in the severely adverse scenario of its annual stress test.
Provisions To Loans: Current Period Versus The Financial Crisis How Allowances And Provisions Compare To DFAST Loan Losses
And Fed’s Severely Adverse Scenario And Provisions
3Q Allowance / DFAST Loan Losses
C
3Q20 YTD - All Banks 1.2% DFS
JPM
PNC
HBAN
USB
S&P Base Case for RF
2.2% ALLY
Pandemic Period - all Banks
BAC
WFC
AXP
COF
2008-2009 All Banks TFC
5.6%
CFG
GS
MTB
FITB
KEY
Fed's Severely Adverse - 33
7.1% BK
Banks in June DFAST MS
NTRS
STT
0% 2% 4% 6% 8% 0 10 20 30 40 50 60
(%)
Source: Federal Reserve Board, S&P Global Ratings, and Company filings
16Banks’ Allowances For Credit Losses Should Decrease In 2021
- Banks held their allowances relatively flat in third-quarter 2020 amid the ongoing economic rebound and after sharp increases in the
first half of 2020.
- We expect further reductions in 2021 as banks charge off more loans that have come under pandemic stress that they have already
allocated reserves for.
Monoline Banks Diversified Banks
4Q19 ACL ex. CECL/Loans 2Q20 ACL/Loans 3Q20 ACL/Loans
14% 4.5%
4.0%
12%
3.5%
10%
3.0%
8% 2.5%
6% 2.0%
1.5%
4%
1.0%
2% 0.5%
0% 0.0%
OFG
HBAN
WFC
WBS
UMPQ
ZION
STBA
CBSH
VLY
STT
NYCB
CIT
BPOP
SNV
UMBF
ISBC
TCF
C
FBP
GS
FITB
HWC
CFG
MTB
KEY
CFR
TCBI
PBCT
CMA
TFC
BOKF
FMBI
SIVB
ASB
FCF
BK
FNB
TRMK
NTRS
MS
FRC
JPM
CADE
ALLY
RF
USB
PNC
BAC
EWBC
FHN
BXS
FHB
SYF
SLM
COF
AXP
DFS
Source: S&P Global Ratings, Company filings
17Commercial Real Estate Will Be A Longer-term Challenge For Some Banks
– Highly granular sector with various segments of CRE expected to respond differently to cyclical and structural pressures
Source: S&P Global Ratings.
18Our Base Case CRE Losses Of 3% Will Be Manageable For Banks In Total
– Losses would only erode 4% of industry capital
Sensitivity Chart: Bank CRE Losses To Tier 1 Capital
Bank CRE Loans outstanding Tier 1 Capital Losses % capital (right scale)
$2,500 25%
24%
$2,100 $2,100 $2,100 $2,100
$2,000 $1,786 $1,786 $1,786 $1,786 20%
$1,500 15%
($ bil.)
12%
$1,000 10%
7%
4% $420
$500 5%
$210
$126
$63
$- 0%
3% 6% 10% 20%
Source: FDIC; S&P Global Ratings. Data as of Q2 2020.
19Energy Unlikely To Threaten Most Banks After Reductions
– Still, meaningful energy exposure has contributed to negative outlooks on some banks
Energy And Related Outstanding Exposure Greater Than $900
Energy And Related Exposure, Quarterly Change (%)
Million At Select US Banks, Q32020
18.0 Texas Capital Bancshares Inc.
CIT Group Inc.
16.0 East West Bancorp Inc.
BOKF Cadence Bancorp.
14.0 Cullen/Frost Bankers Inc.
Proportion of gross loans (%)
Comerica Inc.
12.0 Regions Financial Corp.
KeyCorp
CADE 10.0 Zions Bancorp. NA
Citizens Financial Group Inc.
8.0 U.S. Bancorp
CFR Fifth Third Bancorp
CMA (1) 6.0 PNC Financial Services Group Inc.
BOK Financial Corp.
C (1) CIT (4)
ZION 4.0 Truist Financial Corp.
TCBI
FITB KEY EWBC Wells Fargo & Co.
RF (3) BAC (2) CFG 2.0 JPMorgan Chase & Co.
USB JPM Bank of America Corp.
WFC TCF 0.0 Citigroup Inc.
PNC
-25.0 -20.0 -15.0 -10.0 -5.0 0.0 0.0 5.0 10.0 15.0 20.0
QoQ change (%) ($ bil.)
Data compiled Oct. 30, 2020. Analysis limited to select U.S. public banks that reported energy and related outstanding exposure of greater than $900 million at Sept, 30, 2020., Outstanding exposure data, except for gross loans, is collected on an as-
reported basis from GAAP filings. If disclosed, Paycheck Protection Program loans are excluded from outstanding exposure. 1 Proportion of gross loans computed using gross loans held for investment instead of total gross loans., 2 Exposure balance
may not be limited to loans and leases., 3. Disclosure limited to direct exposure. 4. Announced a merger of equals with First Citizens BancShares Inc. on Oct. 16. Source: S&P Global Market Intelligence,
20Consumers Have Saved More And Reduced Debt Compared To Income
Household Debt Over Disposable Personal Income
120%
115%
110%
105%
100%
95%
90%
85%
80%
75%
70%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Q3
Source: S&P Global Ratings; FRED; New York Fed Consumer Credit Panel/Equifax.
21Consumer Debt Has Grown More Slowly And Its Mix Has Changed
– Credit card debt has fallen notably even as mortgages and auto loans have ticked up
Total Consumer Debt Balance And Composition
Mortgage HE Revolving Auto Loan Credit Card Student Loan Other
14.1 14.4
13.5
14 12.7
13.1 3.1% 2.9%
12.4 12.6 3.0% 10.8%
12.2 11.8 12.1 3.0% 10.7%
3.2% 11.7 11.5 11.5 3.0% 10.8%
12 11.3 3.4% 5.0% 3.1% 11.3 2.9% 10.5% 5.6%
4.4% 5.9% 2.9% 2.8% 10.4% 6.6%
3.6% 6.8% 2.9% 2.8% 2.8% 10.2% 6.4%
10.0 4.3% 6.8% 6.5% 6.9% 7.6% 9.4% 9.8% 6.3% 9.5%
6.2% 8.5% 6.2% 9.4%
10 9.0 4.2% 6.8% 6.6%
5.6% 5.9% 6.2% 6.1% 6.0% 5.9% 5.9% 6.0%
9.2%
9.3% 9.4%
2.8% 2.5%
3.9% 7.3% 5.2% 5.8% 6.1% 6.4% 8.1% 8.8% 3.0%
8.1 4.7% 7.4% 5.7% 6.9% 7.5% 3.4%
3.8% 5.3% 5.4% 4.3% 4.0% 3.8%
5.0% 4.6%
8 7.9%
($ tril.)
5.6% 7.9%
3.1% 8.1% 5.6%
8.7%
8.7% 5.2%
6 3.7%
73.1% 67.6% 68.7%
73.6% 72.7% 72.2% 67.4% 67.6% 67.4%
4 71.0%
72.8% 71.7% 70.8% 69.9% 69.1% 68.1%
70.3%
70.2%
2
0
3Q2020
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: New York Fed Consumer Credit Panel/Equifax.
22Credit Card Debt Has Fallen Meaningfully
– Consumers have heavily used their debt cards but reduced borrowings on credit cards
Recession Systemwide Credit Card Loans (Right) Unemployment Rate (Left) Systemwide Net charge-off rate (Left)
14% 903
942 1000
865 873
900
12% 800 808 796
702 688 696 691 718
756 800
10% 700
$ billions
8% 600
399 396 385 422
445 421 500
6% 339 400
266 250 292
4% 198
227 246 246 242 227 300
147 146 165 200
100 115 126 139 142
2% 84
100
0% 0
2020Q1
2020Q2
2020Q3
2019
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Top 10 Largest Credit Card Lenders As Of Q3 2020 ($ Billions): Sample Is 91% Of Total Card Loans
Bank of American U.S.
Citigroup: JPMorgan: Capital Synchrony: Discover: Wells Barclays US
America: Express: Bancorp:
$140 $126 One: $98 $75 $69 Fargo: $36 LLC: $21
$80 $60 $22
Source: S&P Global Ratings, FDIC Quarterly Banking Profile, Regulatory filings, BLS, Federal Reserve.
23Bank Capital Ratios, Up In 2020, Should Decline Somewhat In 2021
– Profitability and restrictions on shareholder payouts in 2020 helped boost capital ratios. An opening of the door of share buybacks by the
Fed should lead to at least a modest decline in capital in 2021
Median CET1 Of Rated Banks
Money Center Broker Dealers Trust Banks Regional Banks All Banks
16%
15%
14%
13%
12%
11%
10%
Q4 '15
Q1 '16
Q2 '16
Q3 '16
Q4 '16
Q1 '17
Q2 '17
Q3 '17
Q4 '17
Q1 '18
Q2 '18
Q3 '18
Q4 '18
Q1 '19
Q2 '19
Q3 '19
Q4 '19
Q1 '20
Q2 '20
Q3 '20
Note: Transitional calculations. Source: S&P Global Ratings, Bank Regulatory filings, S&P Global Market Intelligence
24The Fed Has Eased, But Not Eliminated, Payout Restrictions
– The Fed left in place restrictions on dividend increases but eased its prohibition of share repurchases starting in the first quarter of 2021.
– It will allow payouts in the first quarter no greater than average quarterly net income in 2020.
Common Dividend Payout Ratio And Permissible Share Repurchases
Estimated quarterly average 2020 net Permissible Q1 2021 share repurchase/NI Permissible Q1 2021 share repurchase (mil.
Bank Holding Company Common dividend payout ratio/NI (%)
income (mil. $) (%) $)
Huntington Bancshares Inc. 200 78 22 44
Regions Financial Corp. 219 68 32 70
Citizens Financial Group Inc. 251 67 33 83
KeyCorp 293 62 38 112
Fifth Third Bancorp 330 59 41 135
Wells Fargo & Co. 705 59 41 292
Truist Financial Corp. 1078 56 44 471
Discover Financial Services 247 55 45 111
U.S. Bancorp 1213 52 48 577
American Express Co. 693 50 50 345
Northern Trust Corp. 319 46 54 171
JPMorgan Chase & Co. 6166 45 55 3388
M&T Bank Corp. 316 45 55 174
Citigroup Inc. 2415 44 56 1341
Ally Financial Inc. 190 38 62 117
Bank of America Corp. 4176 38 62 2605
Bank of New York Mellon Corp. 915 30 70 636
State Street Corp. 609 30 70 426
PNC Financial Services Group Inc. 1789 28 72 1295
Goldman Sachs Group Inc. 1878 24 76 1430
Morgan Stanley 2405 23 77 1854
Capital One Financial Corp. 332 14 86 286
*Notes: 1) Common dividends are sourced from the third-quarter regulatory Y-9C reports, schedule HI-A item 11. 2) The estimated quarterly average 2020 net income (NI) equals the average of Bloomberg consensus estimate of net income for fourth-quarter plus the actual net income
from the Y-9C reports for the first three quarters. 3) Permissible Q1 2021 share repurchase/NI (%) equals 100 minus common dividend payout ratio/NI (%). 4) Sorted by the highest common dividend payout ratio/NI (%) to the lowest.
25The Stress Capital Buffer, Now Effective, Will Govern Capital Actions
– All banks are already above their new minimum required capital ratios.
– The Fed will notify banks in March whether their SCBs changed based on the December 2020 stress test.
– Until then, the June 2021 stress test will be the next event that could alter SCBs
Common Equity Tier 1 Ratio--Basel III Fully Phased-In--
Quarter-over-quarter change
Q3 2020 Q2 2020
(bps) Advanced/ Current CET1
standardized surplus (deficit)
(lower of the Proposed over (under)
two) Stressed capital Standardized proposed
(%) Standardized Advanced Standardized Advanced Standardized Advanced Q3 2020 buffer* CET1 minimum minimum
Bank of America Corp. 11.9 12.7 11.6 11.4 30 130 S 2.5 9.5 2.4
Citigroup Inc. 12.1 11.8 11.8 11.6 30 20 A 2.5 10.0 2.1
JPMorgan Chase & Co. 13.1 13.8 12.4 13.2 70 60 S 3.3 11.3 1.8
Wells Fargo & Co. 11.4 11.5 11.0 11.1 40 40 S 2.5 9.0 2.4
Morgan Stanley 17.4 16.9 16.5 16.1 90 80 A 5.7 13.2 4.2
Goldman Sachs Group Inc. 14.5 12.9 13.3 11.9 120 100 A 6.6 13.6 0.9
Bank of New York Mellon 13.5 13.0 12.7 12.6 80 40 A 2.5 8.5 5.0
State Street Corp. 12.4 12.8 12.3 12.7 10 10 S 2.5 8.0 4.4
Northern Trust Corp. 13.4 13.9 13.4 13.9 0 0 S 2.5 7.0 6.4
*Stressed capital buffers (SCB) from 2020 DFAST results. SCB effective Oct. 1, 2020. Source: Company reports, S&P Global Ratings, the Federal Reserve Board, and regulatory filings
26Deposit Growth Should Slow, But Funding Will Remain Strong
– Growth in the Fed’s balance sheet has been a boon to bank deposits.
– Loan-to-deposit ratios improved significantly in 2020.
– The need for wholesale funding has declined.
Loans to Deposits (right axis) YoY % Change in Deposits YoY % Change in Borrowings
25% 78%
20% 76%
15% 74%
10% 72%
5% 70%
0% 68%
-5% 66%
-10% 64%
-15% 62%
-20% 60%
1/1
1/15
1/29
2/12
2/26
3/11
3/25
4/8
4/22
5/6
5/20
6/3
6/17
7/1
7/15
7/29
8/12
8/26
9/9
9/23
10/7
10/21
Source: Federal Reserve H8 Data; Seasonally Adjusted
27The Full Transition From LIBOR Delayed Until 2023
– Banks will need to continue preparing for the end of LIBOR.
– However, regulators have given banks a reprieve by extending the phase-out date of most U.S. dollar benchmarks by 18 months to June
2023.
Volume And Share Of LIBOR-Tied Products Fallback Language By Type Of Instrument
Share maturing by Fallback Rate
Volume (tril. U.S.$)
end of 2021 (%)
Over-the-counter derivatives Interest-rate swaps 81 66
- Obtain bank quotes; then an alternative rate -
Forward rate agreements 34 100 Business loans
typically prime + spread over effective funds rate
Interest-rate options 12 65
Cross -currency swaps 18 88
Exchange-traded derivatives Interest-rate options 34 99
Interest-rate futures 11 99 - Poll banks for rate; if not received, fix rate at last
Bonds (FRNs)
Business loans Syndicated loans 1.5 83 published LIBOR
Nonsyndicated business loans 0.8 86
Nonsyndicated CRE/commercial
1.1 83
mortgages - Agency MBS and CMO: Issuer sets successor rate
Consumer loans Retail mortgages 1.2 57 - Non Agency: Poll banks then fix rate at last
Securitized Products (1) published LIBOR
Other consumer loans 0.1 0
Bonds Floating/variable-rate notes 1.8 84 - CLO: Fixed rate at last LIBOR
Securitization Mortgage-backed securities 1 57
Collateralized loan obligations 0.4 26
Asset-backed securities 0.2 55 - Replacement rate + or – a spread; spread
Mortgages/consumer loans
component undefined
Collateralized debt obligations 0.2 48
Total U.S.$ LIBOR exposure 198.3 82
Source: Second report Alternative Reference Rate Committee, March 2018; Data are gross notional exposures as of year-end 2016.
28Bank M&A Will Likely Remain Robust In 2021 And Beyond
– While 2020 saw a drop in the number of announced bank acquisitions, it also brought some relatively large deals (e.g., PNC-BBVA USA and
Huntington-TCF).
– We expect further deals as banks look for economies of scale, resources to keep up with advances in fintech, and ways to cope with
pressures from low rates and other factors.
Merger Activity Of U.S. Banks
Assets acquired ($ bil) (left axis) Median price / tangible book (%) (right axis) # of deals (right axis)
450 300
400
250
350
300 200
250
150
200
150 100
100
50
50
0 0
2016 2017 2018 2019 2020
Based on announced data. Source: SNL Financial. Copyright © 2018 by Standard & Poor’s Financial Services LLC. All rights reserved.
29The Pandemic Has Only Accelerated Digitization
– COVID-19 has accelerated banks’ push
into technology.
– The pandemic has also accelerated
branch closures (down 2% year over
year).
– Large banks have an advantage over
smaller banks in terms of tech
spending.
Excludes features common to all or nearly all of the bank apps
reviewed above: check balance, manage account alerts (available in
separate app for Ally Bank), review transactions, pay bills, photo
check deposit, transfer money between accounts, fingerprint login,
access to nondeposit account information, branch/ATM locator, and
tap to call customer service.
*BB&T and SunTrust merged in December 2019, but the bank
brands had not changed names at the time of the publication.
**PNC Bank agreed to buy BBVA USA Bancshares Inc., the U.S.
operations of Banco Bilbao Vizcaya Argentaria SA, on Nov. 16, 2020.
Source: S&P Global Market Intelligence research conducted using product descriptions on bank websites and in app stores, as well as company-provided information when available. Data compiled in summer 2020 and
updated based on publicly available information in mid-November 2020. Some companies may have subsequently updated their apps. Analysis does not necessarily reflect functionality or services available through text
banking, mobile browsers, or secure messaging.
30Subgroups Of Rated Banks
Money Center Banks Large Regional Banks Regional Banks
Bank of America Corp. Associated Banc-Corp People's United Financial Inc.
Ally Financial Inc.
Citigroup Inc. BancorpSouth Bank Popular Inc.
BMO Financial Corp.
JPMorgan Chase & Co. Bank of North Dakota S&T Bank
Citizens Financial Group Inc.
Wells Fargo & Co. Bank of the West SLM Corp.
Fifth Third Bancorp
HSBC USA Inc. BBVA USA Bancshares Inc. SVB Financial Group
Huntington Bancshares Inc. BOK Financial Corp. Synovus Financial Corp.
Trust Banks KeyCorp Cadence Bancorporation TCF Financial Corp.
Northern Trust Corp. M&T Bank Corp. CIT Group Inc. Texas Capital Bancshares Inc.
State Street Corp. MUFG Americas Holdings Corp. Comerica Inc. Trustmark Corp.
The Bank of New York Mellon PNC Financial Services Group Inc. Commerce Bancshares Inc. UMB Financial Corp.
Regions Financial Corp. Cullen/Frost Bankers Inc. Umpqua Holdings Corp.
Santander Holdings USA Inc. East West Bancorp Inc. Valley National Bancorp
Broker Dealers Truist Financial Corp. First Commonwealth Financial Corp. Webster Financial Corp.
U.S. Bancorp First Hawaiian Bank Inc. Zions Bancorporation N.A
Morgan Stanley
First Midwest Bancorp Inc.
The Goldman Sachs Group Inc.
First Republic Bank
Credit Card Banks FirstBank Puerto Rico
American Express Co. Hancock Whitney Corp.
Note: “Large Regional” and “Credit Card” banks may
Capital One Financial Corp. Investors Bancorp
be included with “Regional Banks” throughout
presentation. Data in presentation may exclude Discover Financial Services New York Community Bancorp Inc.
certain domestic subsidiaries of foreign banks and OFG Bancorp
certain other banks that do not file Y-9Cs. Synchrony Financial
31COVID-19 Research
Click to see the following research articles, or find more at www.SPRatings.com/nabanking
- Rating Component Scores For U.S., Canadian, And Bermudian Banks (December 2020)
- The Fed’s Stress Test Results Open The Door For U.S. Banks To Increase Capital Returns In 2020 (12/22/2020)
- SOFR Emerging As Alternative To LIBOR In U.S. Debt Markets (12/04/2020)
- Despite Declining Loss Provisions, U.S. Banks Still Face Asset Quality Risks And Low Interest Rates (11/19/2020)
- Earnings Among Large U.S. Banks Rebounded In Third Quarter, But Uncertainty Remains High (11/17/2020)
- Global Banks Country-By-Country 2021 Outlook: Toughest Test For Banks Since 2009 (11/17/2020)
- Global Banks 2021 Outlook: Banks Will Face The Next Test Once Support Wanes (11/17/2020)
- U.S. Banks Face Long-Term Risks To Their Commercial Real Estate Asset Quality (11/16/2020)
- North American Financial Institutions Monitor 4Q 2020: Finding Some Respite In The COVID-19 Storm (10/22/2020)
32COVID-19 Research Continued
Click to see the following research articles, or find more at www.SPRatings.com/nabanking
- Comparative Stats on All Rated US Banks (10/12/2020)
- Industry Report Card: For Large U.S. Banks, Substantial Credit Provisions Weighed On Earnings (8/13/2020)
- What Lies Ahead For U.S. Bank Provisions For Loan Losses (8/12/2020)
- The Fed's Latest Stress Test Points To Limited Bank Capital Returns (6/30/2020)
- Capital Markets Revenue Should Be A Bright Spot For Banks In A Tough 2020 (Global) (6/23/20)
- Bank Regulatory Buffers Face Their First Usability Test (Global) (6/11/20)
- How U.S. Bank Dividend Cuts Could Affect Ratings (6/3/20)
- For Large U.S. Banks, Loan Loss Expectations Will Be Key To Ratings (5/5/2020)
- Outlooks On 13 U.S. Banks Revised To Negative Due to Economic Downturn From COVID-19 (5/4/2020)
- Who The U.S. Government Plans Help, Who They Don't, And What That Means For Financial Institutions (4/16/20)
- U.S. Financial Institutions Face A Rocky Road Despite A Boost From Government Measures (4/8/20)
33Analytical Contacts
Devi Aurora Stuart Plesser Brendan Browne, CFA
Senior Director and Analytical Manager Senior Director Senior Director
Financial Institutions Financial Institutions Financial Institutions
devi.aurora@spglobal.com stuart.plesser@spglobal.com brendan.browne@spglobal.com
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