With COVID-19 hammering the economy, banks report first quarter earnings
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Banks are reporting their first-quarter earnings this week, and many of those reports will also contain educated guesses about how the COVID-19 economy will play out as the year wears on. They’ll likely lose money this year because of the pandemic, but most are also expected to keep paying dividends to shareholders.
Christopher Marinac, director of research for Janney Montgomery Scott, estimates that large- and medium-sized banks will distribute almost $54 billion in dividends in 2020. That’s about 9% more than last year. Marinac says banks could eliminate dividends as a PR move, to show they’re saving in a down economy.
“The challenge for most banks is that it becomes, who wants to go first and take bad medicine if they don’t feel that they need to take bad medicine?” Marinac said.
The impact of the coronavirus crisis won’t show up until the second quarter, Marinac said. And some firms will soften the blow with profits from administering federal stimulus programs. For example, BlackRock Financial Management will help the Federal Reserve run a bond-buying program. But the Fed is sharply limiting BlackRock’s fees, and made the contract with BlackRock public. Bank watchdog groups like Better Markets like this approach.
“That stands in stark contrast to the Fed’s behavior during the ’08, ’09 financial crash, when the Fed disclosed almost nothing,” Better Markets CEO Dennis Kelleher said.
Banks will also profit from the federal Paycheck Protection Program — those small business loans meant to prevent layoffs. But Mayra Rodríguez Valladares, managing principal of MRV Associates, said community banks may be better at getting those loans out the door than the big guys.
“They don’t have huge staffs, they don’t have a lot of red tape,” she said. “Community banks — their specialty is indeed taking deposits and lending.”
For the Paycheck Protection Program, regulators temporarily loosened rules on how much money banks have to keep in reserve to cover bad loans, Rodríguez Valladares said. And banks are already lobbying to make those changes permanent.
COVID-19 Economy FAQs
How many people are flying? Has traveled picked up?
Flying is starting to recover to levels the airline industry hasn’t seen in months. The Transportation Security Administration announced on Oct. 19 that it’s screened more than 1 million passengers on a single day — its highest number since March 17. The TSA also screened more than 6 million passengers last week, its highest weekly volume since the start of the COVID-19 pandemic. While travel is improving, the TSA announcement comes amid warnings that the U.S. is in the third wave of the coronavirus. There are now more than 8 million cases in the country, with more than 219,000 deaths.
How are Americans feeling about their finances?
Nearly half of all Americans would have trouble paying for an unexpected $250 bill and a third of Americans have less income than before the pandemic, according to the latest results of our Marketplace-Edison Poll. Also, 6 in 10 Americans think that race has at least some impact on an individual’s long-term financial situation, but Black respondents are much more likely to think that race has a big impact on a person’s long-term financial situation than white or Hispanic/Latinx respondents.
Find the rest of the poll results here, which cover how Americans have been faring financially about six months into the pandemic, race and equity within the workplace and some of the key issues Trump and Biden supporters are concerned about.
What’s going to happen to retailers, especially with the holiday shopping season approaching?
A report out recently from the accounting consultancy BDO USA said 29 big retailers filed for bankruptcy protection through August. And if bankruptcies continue at that pace, the number could rival the bankruptcies of 2010, after the Great Recession. For retailers, the last three months of this year will be even more critical than usual for their survival as they look for some hope around the holidays.
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