New York | This week, The Institutional Risk Analyst releases our Q1 2020 bank earnings report, which is for sale in our online store. In our latest credit comment, we feature net loss rate and earnings estimates for JPMorgan (NYSE:JPM), U.S. Bancorp (NYSE:USB), Bank of America (NYSE:BAC) and Goldman Sachs (NYSE:GS) through Q2 2020.....MUCH MORE
Suffice to say that our view of Q1 2020 bank earnings is pretty grim, but the real fun won’t start until the Q2 2020 earnings are released in about 90 days. The key variable in the credit analysis for both banks and bond investors: unemployment. In March, unemployment reached 4.5% nationally. Estimates for April vary but are all in double digits. We write: “We expect that commercial banks too will take losses on default events involving commercial real estate. Imagine, for example, the wreckage that will result from the impending default of WeWork and other leveraged investors in commercial and high end residential real estate in major cities like New York, Los Angeles and Miami."Distressed credit investors are already assembling funds to take advantage of what may be the largest liquidation of commercial properties in a century. Rather than 2008, however, the operative model for the COVID19 crisis may be closer to the deflationary years of the mid-1930s. The chart below shows unemployment through March from the Bureau of Labor Statistics and the consensus estimate for April unemployment....
A couple headlines at ZeroHedge this morning:
Between JPM and Wells, the coronavirus crisis has already prompted just two banks to provision over $10 billion in loan losses....Here's the KBW Bank Index, I'm not sure it deserves to be this high (70.4231) despite the banks being better capitalized than they were in 2008:
