Bank CEOs are looking ahead to the second half of 2021, citing the eventual resumption of share buybacks, an expectation that commercial lending will rebound and targeted M&A opportunities, even as the short-term forecast remains bleak.
In comments Tuesday, top executives at Wells Fargo, PNC Financial Service Group, Truist Financial, Fifth Third Bancorp, Citizens Financial and KeyCorp said little to raise expectations about the industry’s fourth-quarter results. But at a time when the virus is surging and Congress has yet to pass a long-awaited government stimulus package, CEOs pointed to vaccines as the key catalyst for U.S. economic recovery.
“It’s certainly quite possible we could see a very quick recovery as the vaccines get rolled out, given all the pent-up demand that exists,” Wells Fargo CEO Charlie Scharf said in comments at the Goldman Sachs U.S. Financial Services Conference.
One of the biggest questions that investors have right now is when will banks start returning more capital to shareholders, and the CEOs did not provide firm answers on Tuesday. But they offered hope that the Federal Reserve Board, which in June suspended share repurchases at large banks, will loosen the reins once an economic recovery takes hold.
Scharf indicated that Wells, which was one of the only big U.S. banks to lower its dividend during the pandemic, is unlikely to change its course early next year on returning capital to shareholders.
“But 2021 is a long year. As we’ve said before, the vaccine is coming. Clarity certainly could come,” he said. “I also think it’s important for us to be very prudent, and to have some clear line of sight relative to sustainable improvement in the economy fairly broadly.”
Fifth Third Bancorp Chief Financial Officer Jamie Leonard echoed that sentiment, saying the $202 billion-asset Cincinnati company will be prudent once the Fed allows banks to start returning capital.
Meanwhile, KeyCorp CEO Chris Gorman said that the $170 billion-asset company could begin repurchasing shares as soon as it gets the regulatory go-ahead, though he did not say when he expects that to occur.
Several of the CEOs offered downbeat observations about the current state of commercial lending, though some of them expressed optimism about the prospects for a bounceback next year.
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Any optimism for loan growth and an economic rebound is likely to be deferred until well into 2021, said William Demchak, CEO of the $461 billion-asset PNC.
“We’re going to have a bit of rough water for a couple of quarters, then see above-trend growth for some quarters beyond that,” he said.
Pittsburgh-based PNC, which is one of the largest servicers of commercial real estate loans on behalf of investors, is seeing some continued deterioration in the sector, especially from hotels, retail and office buildings.
"A hotel at 15% occupancy doesn’t get better," Demchak said. "Those are grinding largely into a bad place. Isolated sectors of real estate are going to struggle."
Demchak said he expects Congress to pass a stimulus package totaling around $1 billion, which would allow the economy to “muddle through” the remainder of the pandemic until a vaccine is widely available.
Truist Financial Chairman and CEO Kelly King acknowledged that small businesses are struggling, but he said that the picture is better for midsize and large businesses.
“I worry a little bit that everybody is too pessimistic in terms of going into 2021,” he said, noting that the U.S. economy was strong before the pandemic.
Gorman of Key said that commercial line utilization rates are still low, and business clients still have a lot of liquidity, so lending prospects in the sector are weak in the near term. But he also said clients are becoming more optimistic.
“The mindset of our customers has improved,” he said. “You have the path of the virus, but you also have the election behind us, and you have the vaccine.”
Gorman also pointed to opportunities to grow in particular commercial lending segments, such as health care, renewable energy and affordable housing.
Executives at Citizens, Key and Truist all expressed continuing interest in acquisitions, though mostly on a relatively small scale.
Bruce Van Saun, CEO of Citizens in Providence, R.I., said the $179 billion-asset company is primarily interested in nonbank acquisitions, including in wealth management, M&A advisory and other fee-based businesses.
Key is prioritizing organic growth, Gorman said, but he noted that the Cleveland company could be open to acquiring a smaller bank or fintech firm, similar to its 2019 purchase of the digital consumer lending platform Laurel Road.
“We would be comfortable with some of these tuck-in acquisitions and add-on acquisitions,” he said. “We have proven we’re capable of buying them and successfully integrating them.”
Truist’s King said that the Charlotte, N.C., company expects to continue growing its insurance business both through organic growth and small acquisitions within its existing footprint. The $499 billion-asset Truist expects to complete five insurance acquisitions this month. It’s "hard to know" the growth trajectory of the segment, but a "reasonable target" could be 14% to 15% of total companywide revenue over the long term, King said.
Wells Fargo is on a different path. The San Francisco company, which has been selling off units as it manages its operations under a 2018 asset cap with the Federal Reserve Board, will likely continue divesting certain units that it does not consider core to its business, according to Scharf. Wells recently announced its exit from private student lending.
“What we’ve talked about is continued pruning of who we are and what we do,” Scharf said Tuesday.
