1、Equity Research 23 May 2019 CORE Barclays Capital Inc.and/or one of its affiliates does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investo
2、rs should consider this report as only a single factor in making their investment decision.PLEASE SEE ANALYST CERTIFICATION(S)AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 69.Restricted-Internal U.S.Large-Cap Banks 1Q19 10-Q Review&Current Events EPS outlook:Expectations for 2Q19 relative to 1Q19 incl
3、ude higher net interest income reflecting continued loan growth(fairly broad-based outside of CRE),stable to more likely modestly lower net interest margins(deposit costs tend to increase for a couple of quarters post the Fed rate hike pause),and one more accrual day;higher fee income owing to incre
4、ases in investment banking(IPO,M&A),asset management(higher average equity prices),mortgage(higher originations),insurance(helps BBT,at least),and service charges/credit card fees(seasonality);controlled expenses(efficiency improvements and branch rationalization modestly offset by tech spend,positi
5、ve operating leverage continues);relatively benign asset quality metrics(banks seemed unfazed by an increase in nonperforming commercial loans/criticized assets in 1Q);a higher tax rate(1Q seasonally low);and a reduced share count.Results in 2Q19 could benefit from gains tied Tradewebs IPO(BAC,C,GS,
6、JPM,MS,WFC)and the sale of Transactis to MA(COF,FITB,PNC,WFC).WFC should also have another PaP gain.Asset quality:Criticized loans increased 7%at the median bank,led by FITB(+52%;due to MBFI),BK(+18%),CMA(+17%),COF(+14%),GS(+13%),and BBT(+13%).USB(-6%),MS(-6%),ALLY(-4%),CFG(-2%),NTRS(-2%),and STT(-1
7、%)posted declines.Rates:STT,BAC,NTRS,RF,HBAN and CFG screen as the biggest beneficiaries of higher rates,while ALLY,KEY,MTB,COF,USB and FITB stand out at the other end.ALLY,BK,CFG,NTRS,KEY and MTB are expected to hold up best if rates decline,while BAC,CMA,RF,BBT,FITB and COF would be the most adver
8、sely impacted.NTRS,KEY,BK and STT saw the largest reductions from the adverse impact of lower rates relative to 4Q18.Deposit beta:After witnessing deposit betas in the 41-42%range in 2Q18 and 3Q18,it increased to 52%in 4Q18,and then to 70%in 1Q19.ALLY,RF,BBT,CFG and CMA recorded the highest betas in
9、 1Q19.The cumulative beta cycle-to-date stands at 33%,up from 29%last quarter and 26%in 3Q18.Looking at the 2004 cycle,post the first 225bps of rate increases,the cumulative beta was approaching 50%.So far this cycle,ALLY,BK,CFG,COF,USB and C have posted the highest deposit betas(36-47%),while STT,R
10、F,MTB,STI,CMA and BAC stand out on the other end(28%and below).By comparison,in the 2004-2006 cycle,CMA,STT,NTRS,STI,and FITB had relatively higher betas,while BAC,KEY,MTB,USB,and CFG were below peers.Shares:WFC,BAC and C can still repurchase 2%-plus of their shares in 2Q19 based on current stock pr
11、ices and remaining CCAR 2018 allowances,while COF,BBT and STI are out of the market.Looking at the 10-Q covers,GS,CMA,BAC,ALLY,JPM,STT,WFC,and C posted the largest declines in shares outstanding relative to 1Q19 period-end(down at least 1%).RPL:WFC(+$400mn),GS(+$100mn),MTB(+$50mn),and FITB(+$4mn)pos
12、ted the largest increases in legal RPL in 1Q19,while JPM(-$100mn),BK(-$40mn),PNC (-$25mn),and HBAN(-$5mn)were only ones to experience declines.INDUSTRY UPDATE U.S.Large-Cap Banks POSITIVE Unchanged U.S.Large-Cap Banks Jason M.Goldberg,CFA+1 212 526 8580 BCI,US Inna Blyakher+1 212 526 3904 BCI,US Mat
13、thew Kesselhaut+1 212 526 0181 BCI,US Eugene Koysman+1 212 526 0971 Eugene.K BCI,US Brian Morton,CFA+1 212 526 2163 BCI,US Barclays|U.S.Large-Cap Banks 23 May 2019 2 CONTENTS Outlook.3 EPS Outlook.3 Gains&Charges.3 Mergers,Acquisitions&Divestitures.3 Profitability Targets.5 Current Events.6 Interest
14、 Rates.6 Deposit Beta.7 Current Expected Credit Loss(CECL)Model.10 Foreign Exposure.15 Brexit.15 Other Foreign Exposures.17 Legal.22 Interest Rate Sensitivity.23 Balance Sheet.27 Loans.27 Securities Portfolio.29 Deposits.31 Net Interest Margin.32 Asset Quality.35 Criticized Loans.35 Level 3 Assets.3
15、6 Capital.37 Share Repurchase.39 Auditors.41 Business Mix.41 Company Summaries.52 Barclays|U.S.Large-Cap Banks 23 May 2019 3 Outlook EPS Outlook Generally speaking,the 1Q19 10-Qs reiterated the earnings guidance provided on this past quarters EPS conference calls(see Figure 82 through Figure 84).For
16、 2Q19,relative to 1Q19,many seem to be calling for:higher net interest income reflecting continued loan growth(fairly broad-based outside of CRE),stable to more likely modestly lower net interest margins(deposit costs tend to increase for a couple of quarters post the Fed rate hike pause),and one mo
17、re accrual day;higher fee income owing to increases in investment banking(IPO,M&A),asset management(higher average equity prices),mortgage(higher originations),insurance(helps BBT,at least),and service charges/credit card fees(seasonality);controlled expenses(efficiency improvements and branch ratio
18、nalization modestly offset by tech spend,positive operating leverage continues);relatively benign asset quality metrics(banks seemed unfazed by an increase in nonperforming commercial loans/criticized assets in 1Q);a higher tax rate(1Q seasonally low);and a reduced share count(closing out CCAR 2018)
19、.Gains&Charges FITB:During 2Q19,FITB sold its remaining shares of GSKY for a gain of$1mn.Its$1.4bn auto securitization in May could also result in a gain.STI:In 2Q19,STI sold$465mn of accruing TDRs for a$44mn gain,which was used to offset$45mn of realized losses related to the repositioning of a por
20、tion of its AFS securities portfolio.In addition,for the remainder of 2019,STI expects additional merger-related costs on a stand-alone basis of approximately$10mn each quarter.STT:It recorded$13mn of acquisition costs in 1Q19 related to the acquisition of CRD.As STT integrates CRD into its business
21、,it expects to incur$200mn of acquisition costs(including merger and integration costs)through 2021,of which$44mn has been incurred as of 1Q19.In 1Q19,STT released$4mn of restructuring accruals related to its Beacon program.WFC:It expects to close on the sale of$2.0bn Pick-a-Pay PCI loans in 2Q19(so
22、ld$1.6bn for$0.6bn gain in 1Q19).We estimate a gain of$0.8bn($0.13/share)for 2Q19.We also expect a gain on the sale of its Institutional Retirement and Trust business.This transaction is expected to close in 3Q19.COF,FITB,PNC,WFC:In early May,MasterCard announced it entered into an agreement to acqu
23、ire Transactis,a platform that helps businesses deliver bills and receive payments through one simple-to-navigate experience.Terms of the agreement were not disclosed.The transaction is anticipated to close in 2Q19.Back,in April 2016,COF,FITB,PNC and WFC(along with TD and Safeguard Scientifics)annou
24、nced they each invested$5mn in Transactis for a total of$30mn,as part of a Series E financing.BAC,C,GS,JPM,MS,WFC:During the quarter,Tradeweb,a global operator of electronic marketplaces for rates,credit,equities and money markets,went public.Several banks are owners.As such,we would expect one-time
25、 gains to be booked during the quarter given their likely very low cost basis.We believe BAC,C,GS,JPM,MS,and WFC all have stakes.Mergers,Acquisitions&Divestitures BBT/STI:On Feb 7,BBT announced a merger with STI.SunTrust Bank will merge with and into Branch Bank,with Branch Bank as the surviving ent
26、ity.Shareholders of STI will receive 1.295 shares of BBT common stock for each share of STI common stock.The merger is expected to close late in the 3Q19 or 4Q19.Both companies are similarly sized with BBT at Barclays|U.S.Large-Cap Banks 23 May 2019 4$226bn(#11 in the U.S.)in assets and STI(#12)at$2
27、16bn,resulting in a pro forma company at$441bn,creating the 6th largest bank in the U.S.(ex.GS and MS)and the number 3 player in the attractive Southeast/Mid-Atlantic market,behind BAC and WFC.The combined company will operate under a new name(to be determined)and brand,while the board of directors
28、and executive management team will be evenly split.CFG:Results in 1Q19 included one month of its purchase of Bowstring Advisors,LLC(“Bowstring”),an Atlanta,Georgia-based mergers and acquisition advisory and capital raising firm.Results in 2Q19 will be impacted by ownership for a full quarter.COF:On
29、July 26,COF announced that it entered into a new,long-term credit card program agreement with Walmart(WMT).Under the terms of the agreement,it will become the exclusive issuer of WMTs co-brand and private label credit card program in the U.S.On Jan 22,COF announced that it entered into a definitive
30、agreement to acquire the existing portfolio of WMTs co-brand and private label credit card receivables.At closing,COF expects the portfolio will consist of$8bn of receivables.COF expects to launch the new issuance program and close on the acquired portfolio late in 3Q19 or 4Q19.FITB:On March 22,FITB
31、 completed the acquisition of MBFI for$3.6bn($1.8bn of goodwill created).FITB recorded a$183mn CDI asset(amortization period of 6.8 years).On May 3,MB Financial Bank merged with and into Fifth Third Bank.This included all systems and client conversion in connection with the bank merger.This purchase
32、 will be included for a full quarter in 2Q19,compared to less than 2 weeks in 1Q19.GS:In May,GS announced the acquisition of United Capital Financial Partners for$750mn in cash.The transaction is expected to close in 3Q19.United Capital is a registered investment advisor(RIA)with$25bn of AUM and ove
33、r 220 financial advisors serving 22,000 clients in 90 offices across the U.S.United Capital also operates FinLife CX,a digital platform that helps independent advisors grow their business and form stronger relationships with their clients.In early November,GS announced the acquisition of Rocaton Inv
34、estment Advisors,expanding its retirement and advisory platform.Rocaton has$600bn in assets under advisement and offers advisory and discretionary investment services to institutional clients including retirement plans,healthcare and insurance companies,endowments,foundations and financial intermedi
35、aries.This transaction is expected to close in 1H19.HBAN:Its sale of its Wisconsin branch banking operations is expected to close in 2Q19.These are 32 former FMER branches.It had$845mn in deposits and$126mn of loans included in held-for-sale at 1Q19.JPM:In May,JPM announced its plan to acquire Insta
36、Med,a U.S.healthcare technology company that specializes in healthcare payments.The acquisition will expand the banks suite of payment services designed specifically for healthcare consumers,providers,and payers.InstaMeds secure,platform aims to alleviate a number of challenges in the healthcare pay
37、ments industry,with particular focus on eliminating paper,improving the consumer financial experience and reducing costs to collect payments.KEY:On April 3,KEY closed on its acquisition of Laurel Road Banks digital lending business as it acquired and expanded targeted client relationships.The acquis
38、ition of Laurel Road allows it to expand national,digital-only lending capabilities,boost its client experience through compelling digital tools,and deliver a holistic banking experience to a targeted segment of consumers.MS:On May 1,MS completed the purchase of Solium Capital,a global provider of s
39、oftware-as-a-service(SaaS)for equity administration,financial reporting and compliance for$0.9bn.Barclays|U.S.Large-Cap Banks 23 May 2019 5 The transaction is expected to have a minimal impact on the MSs earnings and capital ratios.MS does not anticipate any adjustments to the share repurchases in 1
40、Q19 or 2Q19.MTB:On January 31,MTB and Bayview Financial entered into an arrangement whereby MTB would add$7.9bn to its residential mortgage loan sub-servicing portfolio,effective April 2.PNC:In May,PNC announced the sale of certain components of PNC Capital Advisors LLCs(PCA)investment-management bu
41、siness to Federated for$52mn.The sale includes$9bn in assets from 3 PNC government and treasury money market funds,$2.7bn in equity mutual fund assets and$700mn in fixed-income mutual fund assets.PNC and FII will also encourage PNCs current select equity,structured equity and international separate
42、account and separately managed account clients,with$1.5bn in assets,to move to FII.The transaction is expected to close in 4Q19.WFC:On April 9,WFC announced an agreement to sell its Institutional Retirement and Trust business.The transaction is expected to close in 3Q19.Profitability Targets The med
43、ian targets for our large-cap banks points to 16%ROTCE,54%efficiency ratio,51bps NCO ratio,and a 9.6%in CET1 ratio.FIGURE 1 Profitability Targets Time FrameROEROTCEROAEfficiencyNCO RatioCET1 RatioALLY201912-13%+46.6-47.6%9.0%BACLong-term12%1.00%60%10.0-10.5%BBTLong-term12-15%19-22%1.40-1.70%0.40-0.6
44、0%9.50-9.75%BBT/STI202122%51.0%9.75-10.0%BKLong-termCLong-term16%Low 50%11.5%CFGMedium-term14-16%54%10.0%CMAMedium-term13-15%1.10-1.30%55%9.5-10%COF202142.0%11.0%FITB202018%+1.55-1.65%53.0%9.0%GSHBANLong-term17%-20%53%-56%0.35-0.55%9-10%JPMMedium-term17%55%11-12%KEYLong-term16-19%54-56%0.40-0.60%9-9
45、.5%MS2018-201910-13%11.5-14.5%73%MTBLong-term55%NTRSLong-term10-15%PNCLong-term8.5%RF202118-20%55%0.40-0.65%9.5%STILong-term14-16%56-58%8-9%STTMedium-term12-15%USBLong-term14.5-17.5%Low 50%0.95%8.5%WFCThru 201912-15%14-17%55-59%0.60-0.70%10.0%13.5%16.0%1.38%54.0%0.51%9.6%MedianSource:Barclays Resear
46、ch and Company reports Barclays|U.S.Large-Cap Banks 23 May 2019 6 Current Events Interest Rates As detailed beginning on page 24,based on their disclosed interest rate sensitivity simulations with some adjustments for methodology differences,STT,BAC,NTRS,RF,HBAN and CFG would be the biggest benefici
47、aries of a 100bp parallel increase in U.S.interest rates at 1Q19.ALLY,KEY,MTB,COF,USB and FITB stand out at the other end.Assuming a 100bp parallel decrease in interest rates at 1Q19,ALLY,BK,CFG,NTRS,KEY and MTB would hold up best,while BAC,CMA,RF,BBT,FITB and COF would be the most adversely impacte
48、d.Still,it is important to note,these ranking are heavily influenced by company assumptions.The following charts from Figure 2 through Figure 5 are based on each banks 1Q19 10-Q disclosure of interest rate sensitivity.FIGURE 2 EPS Impact from 100bps Parallel Increase in Rates-2%0%2%4%6%8%10%STTBACNT
49、RSRFHBANCFGBKCCMASTIPNCJPMWFCBBTFITBUSBCOFMTBKEYALLY Source:Barclays Research and Company reports FIGURE 3 Net Interest Margin Impact from 100bps Parallel Increase in Rates -0.02%0.00%0.02%0.04%0.06%0.08%0.10%0.12%0.14%0.16%STTBACNTRSCMARFHBANBKCFGCPNCSTIJPMBBTWFCFITBUSBCOFMTBKEYALLY Source:Barclays
50、 Research and Company reports Barclays|U.S.Large-Cap Banks 23 May 2019 7 FIGURE 4 EPS Impact from 100bps Parallel Decrease in Rates -14%-12%-10%-8%-6%-4%-2%0%ALLYBKCFGNTRSKEYMTBPNCSTTWFCHBANSTIJPMCUSBCOFFITBBBTRFCMABAC Source:Barclays Research and Company reports FIGURE 5 Net Interest Margin Impact