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In Big Bank Earnings, Keep An Eye On Mobile Movement

October 12, 2020 at 06:48PM

Earnings season will pull back the curtain on where banks stand amid the pandemic — not just in terms of trading revenues amid rocky (to put it mildly) equities and fixed income markets. And not just in terms of loan losses.

With the initial reports of J.P. Morgan and Citigroup slated for Tuesday, Oct. 13, we’ll also get a sense of the great digital shift that is moving traditional financial services, increasingly, into the mobile realm.

Supplemental materials released alongside earnings typically provide a wealth of insight into how mobile efforts are faring, how spending trends are crystalizing, and even how branch “physical footprints” may be shrinking.

At a high-level view, trading revenues are likely to see a big surge (investment banking and trading desks make money on flurries of activity whether or not investors do). But the pandemic has and is taking its tolls, and banks will continue to take significant reserves (which usually hit earnings).

In this case, for the third quarter, J.P. Morgan earnings are expected to fall by 27 percent year on year, to $2.18 as estimated by Nasdaq.com, outpacing a projected 6 percent revenue slump to $28.2 billion.

Separately, as noted by Yahoo Finance, Citi’s consensus earnings are slated to come in at 92 cents, leagues below the $2.07 last year. Revenues are projected to decline by about 7 percent to $17.2 billion.

But it is the mobile shift where notable growth may be logged, even as analysts parse the data to see if headline results were better than expectations’ low bars. Remember that banks set aside tens of billions of dollars in loan loss provisions. J.P. Morgan took $10.5 billion to address anticipated defaults, Citigroup set aside $5.6 billion — and we’ll get a sense of whether those reserves are realistic estimates of how banks are grappling with an anticipated increase in defaults.

Over the summer, JPM posted second quarter results that showed double-digit gains in mobile customers to more than 35 million, and total active digital customers gained 6 percent to roughly 51 million. Consumer spending gained ground, in part driven by stimulus and other benefits, and card loans were up 8 percent while card sales volume, we reported, surged by 11 percent from the year ago second period to $192.5 billion.

Citi’s own numbers show some similar traction. The company saw 6 percent growth in total active digital customers to 20 million, with a boost in active mobile customers on the order of 12 percent to 13 million. Citi’s branch footprint shrank by 3 percent to 2,327 in the period. Branded cards revenue was up 1 percent year on year to $2.2 billion in the quarter.

In commentary on digital efforts, Citi CFO Mark Mason told analysts that “digital deposit sales accelerated even as we continue to adjust pricing given the current rate environment with digital deposits growing by $3 billion this quarter to a total of nearly $12 billion.”

Two-thirds of the digital growth is coming from outside the branch footprint, Mason said on the call. JPMorgan CFO Jennifer Piepszak said that “since the start of the pandemic, we’ve seen increased levels of digital engagement. For example, quick deposit enrollment is up 2 times pre-COVID levels.”

Economic headwinds abound, opinions vary as to how the consumer will keep spending (or won’t) and low interest rates portend a tough balancing act for banks’ net interest margins. But at least one trend cuts steadily up and to the right — the march to do banking via mobile means.

In Big Bank Earnings, Keep An Eye On Mobile Movement …

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