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
What’s the outlook for vaccine supply?
Chief executives of America’s COVID-19 vaccine makers promised in congressional testimony to deliver the doses promised to the U.S. government by summer. The projections of confidence come after months of supply chain challenges and companies falling short of year-end projections for 2020. What changed? In part, drugmakers that normally compete are now actually helping one another. This has helped solve several supply chain issues, but not all of them.
How has the pandemic changed scientific research?
Over the past year, while some scientists turned their attention to COVID-19 and creating vaccines to fight it, most others had to pause their research — and re-imagine how to do it. Social distancing, limited lab capacity — “It’s less fun, I have to say. Like, for me the big part of the science is discussing the science with other people, getting excited about projects,” said Isabella Rauch, an immunologist at Oregon Health & Science University in Portland. Funding is also a big question for many.
What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?
Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”
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