大型银行业：宏观信号喜忧参半，支出停滞
来源：二级建造师 发布时间：2020-09-26 点击：
Large
Cap
Banks
Credit
Update:
Mixed
Macro
Signals,
Spending Stagnating;
Reserve
Models
Need
Shift?
Recent macro signals have been mixed, hence, the outlook for the economy and credit quality
remains
uncertain.
Key
points:
1)
unemployment
is
better,
but
importantly, permanent
unemployment
continues
to
rise
–
with
more
layoff
announcements, permanent unemployment is
likely to continue to rise.
Consumer spending has
been stagnating,
and
if
it
does
not
improve,
this
may
drive
more
layoffs
(which
in
turn would
likely
continue
to
hurt
spending),
while
pressure
on
profitability
in
other industries
is
likely
to
add
to
unemployment.
As
the
benefit
from
stimulus
checks disappears and some of those returning to work see lower paychecks, spending, and potentially ability to make debt payments for some borrowers, would be hurt. 2) Early credit indicators are mixed and
heavily
masked
by benefit
of
stimulus/supplemental unemployment benefits. As more loans come off forbearance and impact of stimulus benefits wears off, their performance will be key. 3) Credit rating downgrades remain high,
but
trends
mixed
–
leveraged
loan
downgrades
have
slowed,
but
CLO downgrades have accelerated. 4) Looking to 3Q reserves, impact of one key input to the
CECL
model,
the
unemployment
rate,
is
unclear
–
latest
unemployment
rate
is below
CECL
assumptions
at
many
of
our
banks
and
Moody’s
forecast,
which
may imply no more reserve build. However, key is whether unemployment is a leading or lagging
indicator.
If
spending
is
stagnating
and
unemployment
benefits
continue
to dwindle, banks may need to shift CECL models to give greater weight to other factors, including qualitative ones. In our view, there is much uncertainty still, and some banks could
have
some
further
reserve
builds,
albeit at
much
lower
levels
and
tempered
a little by the decline in C&I loans, as seen in Fed weekly data. Among our banks, Citizens has the lowest reserves/loans ratio and was the only one to use Moody’s forecast from May when determining 2Q reserves, while others used
June forecast.
Citi and US
Bancorp’s credit card reserves
are lower than
our other banks, but notably, all our banks have higher reserve coverage for credit card loans than comparable consumer finance firms. Banks with lower reserve coverage levels are the ones to watch more closely for reserve shifts. See pages 16-28. Total and permanent unemployment trends diverging. Total unemployment fell more than expected to 8.4% in August, but permanent unemployment continued to increase. Initial jobless claims have declined recently, but initial claims as share of the labor force is still 1.6x the ratio seen in 2008-2009 (pages 4-5). Some companies have announced sizable permanent layoffs, including some employees currently on furlough. Additionally,
the banking
industry needs
to start
cutting
costs with
rates likely remaining at zero for a long time, and there have been news reports of Wells Fargo cutting tens of thousands of employees. Some banks may start to give some outlook for lowering expenses next week, which would include white collar job cuts. Rebound in consumer spending has stagnated, which could trigger more layoffs if this trend persists. Chase card spending has been mostly stuck around -10% yoy for two months after a sharp rebound in April-June per JPM Economic Research. Some players, such as Walmart, have cited consumers recently shifted to cut spending and increased focus on discounts/price, likely partly due to stimulus benefits ending. Some
decline
in
loans
on
forbearance,
but
data
very
limited
thus
far
–
some updates likely next week from banks. Per latest Black Knight data on residential mortgages
coming
off
forbearance,
58%
extended
forbearance,
31%
returned
to performing,
and
5%
became
delinquent.
7.2%
of
residential
mortgages
were
on forbearance
as
of 8/30,
down
from
8.6%
peak
at
6/7.
Unsurprisingly,
forbearance rates are higher on Ginnie loans than Fannie/Freddie loans. See pages 11-12. See page 37 for analyst certification and important disclosures. North America Equity Research 10
September
2020
Banks
—
Large-Cap Vivek
Juneja
AC
(1-212)
622-6465
vivek.juneja@jpmorgan.com
Bloomberg
JPMA
JUNEJA
<GO>
Jonathan
Summitt
(1-212)
622-6341
jonathan.summitt@jpmorgan.com
Andrew
J
Dietrich
(1-212)
622-4244
aj.dietrich@jpmorgan.com
J.P.
Morgan
Securities
LLC
Also see our recent reports: Fed Weekly: Cards Up Sizably; C&I Falls Further, Down 6% QTD; Deposits Down Again Last Week, dated September 4, 2020
New GSE Refi Fee: Expect Modest EPS Hit In "21; Several Details And Impact On Refis Unclear, dated August 27, 2020
Consumer Service Charges: Down 40%, Led By 50% Drop In Overdrafts; Regions Hurt Most, Next Citizens, dated August 6, 2020
Post 2Q: Stalled Outlook, Post Deferral Trends Key; Fee Growth Drivers And Reserve Build To Slow, dated July 30, 2020 J.P. Morgan 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. Investors should consider this report as only a single factor in making their investment decision. www.jpmorganmarkets.com
Vivek
Juneja
(1-212)
622-6465
vivek.juneja@jpmorgan.com
North
America
Equity
Research
10
September
2020
Downgrades
remain
high,
but
trends
mixed:
leveraged
loan
downgrades
have slowed from extremely high levels in April-June, but CLO downgrades are rising – most
downgrades
have
been
in
BBB
or
lower
CLO
tranches,
with
none
in
AAA tranches and very little in AA/A (see page 9). However, corporate bankruptcies have increased,
while
leveraged
loan
and
high
yield
bond
default
rates
have
risen
to 4.38%
and
5.77%
respectively
(LTM
annualized),
led
by
energy.
Criticized commercial loans rose sharply in 2Q at our banks by 49% qoq to 7.2% of non-PPP commercial loans on average. We are continuing to watch COVID-impacted industries as economy reopening remains
slow
in
sectors such
as
restaurants,
transportation, leisure, entertainment, retail
(non-essential),
and
hotels.
For
consumer
loans,
credit
cards
and
unsecured consumer
loans
remain
the
main
areas
of
concern.
This
report
includes
updated exposures by bank to these areas where disclosed. See pages 29-36.
Table of Contents Recent Credit And Market Trends
.......................................................................................................... 4 Unemployment and Layoff Trends Mixed
....................................................................................................................................... 4-5 Consumer Spending Stagnating
......................................................................................................................................................... 6 Credit Losses Likely to Lag Further in This Downturn
...................................................................................................................... 7 Corporate Bankruptcies Up Sharply
................................................................................................................................................... 8 CLO Downgrades Rising but Leveraged Loan Downgrades Slowed
............................................................................................ 9-10 Mortgages on Forbearance Down but Majority Are Extending Forbearance
............................................................................... 11-12 Leveraged Loan and High Yield Bond Defaults Up YTD
................................................................................................................ 13 High Yield Spreads Reversed About 75% of Prior Widening
.......................................................................................................... 14 Criticized Loans Spiked Further in 2Q
............................................................................................................................................. 15 Reserves For Credit Loss Coverage And Outlook
........................................................................... 16 Reserve Build Slowed in July
........................................................................................................................................................... 17 CECL Model Forecasts Vary by Bank but Are Hard to Compare
.................................................................................................... 18 Moody’s Forecast Has Weakened Less in 3Q Than in 1Q and 2Q
.............................................................................................. 19-20 Reserve Comparisons by Bank and Loan Type
........................................................................................................................... 21-28 Bank Exposures To Distressed Industries
......................................................................................... 29 CRE Exposures
................................................................................................................................................................................ 30 Retail Exposures
............................................................................................................................................................................... 31 Energy Exposures
............................................................................................................................................................................. 32 Entertainment and Leisure Exposures
.............................................................................................................................................. 33 Restaurants and Lodging Exposures
................................................................................................................................................. 34 Transportation Exposures
................................................................................................................................................................. 35 Credit Card and Unsecured Consumer Loan Exposures
................................................................................................................... 36
Unemployment Improved From March Peak, But Initial Claims Still At 1.6x 2008-2009 Levels
While unemployment has improved sharply from March’s record levels, it still remained very high at 8.4% in August. However, initial jobless claims remain elevated, with recent weeks running at 1.6x 2008-2009 levels (adjusted for labor force size) and about 3-4x pre-COVID levels. Initial claims averaged 847,000 in August or 0.53% of the labor force, which is 1.6x the 0.32% average seen from 2008-2009 – see Fig 3.
Figure 1: Unemployment Has Improved from March Peaks but Still Very High at 8.4% in August Unemployment
rate
by
industry
Figure 2: Similarly, Initial Jobless Claims Have Fallen Sharply from Peak … US
initial
jobless
claims,
non-seasonally
adjusted
Figure 3: … But Initial Claims in August Were Running at 1.6x Levels Seen in 2008-2009 (as Percent of Labor Force) Monthly
average
of
US
initial
jobless
claims,
NSA
/
US
labor
force
40%
35%
30%
25%
20%
15%
10%
5%
0%
Total
Mining, Oil &
Wholesale &
Leisure &
7,000K
6,000K
5,000K
4,000K
3,000K
2,000K
1,000K
0
Pre-COVID Levels: ~200-300k March Peak: 6.2 mil Current Levels: ~800k
1.0% 0.9% 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% Unemployment
Gas Extraction Retail Trade Hospitality 2/14 3/13 4/10 5/8 6/5 7/3 7/31 8/28 1/08
5/08
9/08
1/09
5/09
9/09
1/10
5/10
9/10 6/20- 8/20 Source:
U.S.
Bureau
of
Labor
Statistics.
Source:
U.S.
Department
of
Labor.
Source:
U.S.
Department
of
Labor.
Mar "20 Apr "20 May "20 Jun "20 Jul "20 Aug "20
Weekly Average Claims as % of Labor Force June-Aug 2020
Permanent Unemployment Has Risen And Likely To Rise Further, Tempering Improvement
While the overall job market has sharply rebounded, permanent job losses have steadily increased, and several large companies have recently announced permanent layoffs. The permanent job losses reflect the high degree of economic uncertainty remaining plus the extent of damage caused by the pandemic, and more losses could taper a further recovery. Additional layoffs are likely, some as a direct impact of economic softness, and further layoffs could bode for potential reversal or sharp slowing in the improvement in economic data. In some industries, such as airlines, layoffs are likely contingent on federal aid lapsing. Layoffs in the banking industry are likely due to the impact of zero rates, which would add to the macro pressure – these are in addition to Wells Fargo’s layoffs, which is exacerbated by its unique issues.
Figure 4: Temporary Layoffs Have Sharply Rebounded, but Permanent Job Losses Continue to Rise … US
job
losses
(mil)
and
unemployment
rate
Figure 5: … And Companies Are Continuing to Announce Job Cuts Tracked
US
job
cut
announcements
1,000k 18 16 14 12 10 8 6 4 2 0 8/19
9/19
10/19
11/19
12/19
1/20
2/20
3/20
4/20
5/20
6/20
7/20
8/20 16%
14%
12%
10%
8%
6%
4%
2%
0%
800k
600k
400k
200k
0
Jan "20 Feb "20 Mar "20 Apr "20 May "20 Jun "20 Jul "20 Aug "20 Source:
Challenger,
Gray
&
Christmas
and
Bloomberg.
Source:
U.S.
Department
of
Labor
and
U.S.
Bureau
of
Labor
Statistics.
Permanent Job Losses (LHS) Temporary Job Losses (LHS) Unemployment Rate (RHS) Excludes many unannounced cuts 397k 263k 170k 116k 68k 57k 671k
222k
Some Signs Consumer Spending Is Stagnating
Also see JP Morgan Economic Research’s latest Daily Consumer Spending Tracker, dated September 4, 2020
Credit and debit card spending seems to have plateaued recently, with the recovery in JP Morgan Economic Research’s daily consumer spending tracker stagnating and spending hovering around -10% yoy since mid-June, after hitting a low of-40% yoy in late March.
Additionally, some grocery retailers, such as Walmart and Stop & Shop, are seeing spending cutbacks or increased price cautiousness by consumers per recent news articles, which makes intuitive sense due to the level of economic uncertainty, decrease in and/or end of supplemental unemployment benefits, and run-off of benefit from one-time stimulus checks.
If layoffs pick up and unemployment does not improve, recovery in consumer spending would be limited.
Expect Credit Losses To Have Longer Lags Than Prior Cycles Due To Stimulus, Forbearance
We expect that credit losses could have longer lags behind macroeconomic metrics than during prior cycles as stimulus and forbearance would likely delay, rather than eliminate, some defaults unless these programs are continued indefinitely since the economy and employment are unlikely to very quickly recover fully back to pre-pandemic levels.
Figure 6: C&I Losses Have Somewhat Mirrored Macro Variables Such As GDP Growth, but Losses Have Tended to Lag Macro Trends Industry
C&I
NCO
ratio,
inverted
change
in
trailing
four
quarter
average
real
US
GDP
through
1Q20
Figure 7: Credit Card Losses Are Highly Correlated With Unemployment but Also Have Some Lag Industry
credit
card
NCO
ratio,
US
unemployment
rate
through
1Q20
4.0%
2.0%
0.0%
-2.0%
-4.0%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
-6.0% 0.0% "89 "92 "94 "97 "99 "02 "04 "07 "09 "12 "15 "17 "20 Inverted Trailing 4 Qtr GDP Growth (LHS) Industry C&I NCOs (RHS)
3.0% 2.0% "89 "92 "94 "97 "99 "02 "04 "07 "09 "12 "15 "17 "20 Unemployment Rate (LHS) Industry Credit Card NCOs (RHS)
Source:
FDIC,
Bureau
of
Economic
Analysis,
and
J.P.
Morgan.
Source:
FDIC,
Bureau
of
Labor
Statistics,
and
J.P.
Morgan.
Inverted GDP Growth NCO Ratio Unemployment Rate NCO Ratio
Bankruptcies Up Sharply – Correlated With Growth
Large corporate bankruptcies tracked by Bloomberg recently jumped to financial crisis peaks, as trailing 3 months sum of bankruptcies hit 89 in July, the same as the prior peak seen in March 2009. Large corporate bankruptcies did abate some in August, but it is unclear whether this dip was temporary. Bankruptcies declined to 20 in August from 28-32 per month in May-July and close to the 16-19 per month in January-April. If unemployment worsens and GDP growth slows, we would expect some increase in bankruptcies. Large corporate bankruptcies did not seem to have a significantly long lag in prior cycles, although trends could differ some in this downturn.
Figure 8: Large Corporate Bankruptcies Jumped in July … Large
corporate
bankruptcies
tracked
by
Bloomberg,
inverted
change
in
trailing
four
quarter
average
US
GDP
Figure 9: … To Same Level as Financial Crisis Peaks Large
corporate
bankruptcies
tracked
by
Bloomberg,
inverted
change
in
trailing
four
quarter
average
US
GDP
35
30
25
20
15
10
5
0 Jul "19
Aug "19
Sep "19
Oct "19
Nov "19
Dec "19
Jan "20
Feb "20
Mar "20
Apr "20
May "20
Jun "20
Jul "20
Aug "20 2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0% 100 90 80 70 60 50 40 30 20 10 0
1Q99
1Q00
1Q01
1Q02
1Q03
1Q04
1Q05
1Q06
1Q07
1Q08
1Q09
1Q10
1Q11
1Q12 4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0% Source:
Bloomberg,
Bureau
of
Economic
Analysis,
and
J.P.
Morgan.
Includes
bankruptcies
tracked
by
Bloomberg
on
monthly
basis.
Source:
Bloomberg,
Bureau
of
Economic
Analysis,
and
J.P.
Morgan.
Includes
bankruptcies
tracked
by
Bloomberg
on
quarterly
basis.
Large Corporate Bankruptcy Count (LHS) Inverted Trailing 4 Qtr GDP Growth (RHS) Large Corporate Bankruptcy Count (LHS) Inverted Trailing 4 Qtr GDP Growth (RHS)
Share of CLOs Downgraded YTD (By Count) Share of CLOs on Negative Rating Watch (By Count) 35% 33% 28% 20% 20% 11% 8% 7% 0%
0% 0%
0% 2%
3% AAA AA A BBB BB B Total
CLO Downgrades Picked Up In 2Q/3Q But Limited To Lower Rated Tranches
CLO ratings downgrades picked up starting in June but have been mostly in lower rated tranches. 7% of all CLO tranches in the CLOIE Index have been downgraded YTD through late August, with zero AAA tranches downgraded, 0.2% of AA tranches, and 1.6% of A, far below rest of the tranches as 8% of BBB, 20% of BB, and 33% of B tranches have been downgraded per JP Morgan CLO Research. CLOs on negative ratings watch are similarly limited to lower rated tranches, with no AAA, 0.1% of AA, and 3% of A tranches on watch, compared with 20% of BBB, 28% of BB, and 35% of B tranches on watch per JP Morgan CLO Research. In the financial crisis, CLO downgrades lagged market-based stress measures such as how far below par leveraged loans were trading – leveraged loan prices plummeted in 2008, but CLO downgrades did not materially increase until 1Q09. Figure 10: No AAA Rated CLO Tranches Downgraded or On Negative Watch, but 20%-35% of B/BB Rated Tranches Downgraded or On Negative Watch Share
of
CLOIE
index
downgraded
YTD
and
on
negative
watch/outlook
by
count
Figure 11: CLO Ratings Downgrades Historically Lagged Market-Based Metrics, Such as How Far Below Par the Underlying Leveraged Loans Were Trading Count
of
Moody’s
CLO
tranche
downgrades
and
leveraged
loan
index
price
discount
to
par
40%
35%
30%
25%
20%
15%
10%
5% 450 400 350 300 250 200 150 100 50 0
Moody"s CLO Downgrades (LHS) Leveraged Loan Discount to Par (RHS) 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 0% Jan "08 Apr "08 Jul "08 Oct "08 Jan "09 Apr "09 Jul "09 Oct "09 Jan "10 Apr "10 Jul "10 Jan "19 Apr "19 Jul "19 Oct "19 Jan "20 Apr "20 Jul "20 Source:
J.P.
Morgan
CLO
Research,
Bloomberg,
Moody’s,
and
S&P.
X-axis
shows
original
rating.
Based
on
CLOIE
index
as
of Aug
26th,
2020.
Includes
YTD
downgrades
as
of
August
23rd
for
S&P
and
as
of
Aug
27th
for
Moody’s.
Source:
J.P.
Morgan
CLO
Research,
INTEX,
and
Moody’s.
Moody’s
downgrades
based
on
CLOIE
index
constituents
and
includes downgrades
through
Aug
27th,
2020.
Leveraged
loan
discount
to
par
based
on
JPMorgan
Leveraged
Loan
Summary
Average
Price
Index.
Leveraged Loan Downgrades Have Slowed And Distressed Loans Down Significantly From Peak
The speed of downgrades of leveraged loan issuers has slowed significantly in July and August, after jumping rapidly in March. On a rolling three month basis, the number of issuers downgraded has dropped by about 75% since peaking in May. Distressed leveraged loans (those trading below 80% of par value) also declined sharply to 9.7% of leveraged loan at the end of August after peaking at 31% in March.
Figure 12: Leveraged Loan Downgrades Slowed Sharply in July and August … Number
of
issuers
downgraded
in
S&P/LSTA
Leveraged
Loan
Index,
rolling
3
month
basis
500
450
400
350
300
250
200
150
100
50
0
08/19
09/19
10/19
11/19
12/19
01/20
02/20
03/20
04/20
05/20
06/20
07/20
08/20
Source:
S&P
Global
Market
Intelligence
(LCD).
Figure 13: … And Distressed Leveraged Loans Also Dropped Percent
of
S&P/LSTA
Leveraged
Loan
Index
trading
below
80%
par,
by
issuer
count
80%
70%
60%
50%
40%
30%
20%
10%
0%
01/02
10/03
06/05
02/07
10/08
07/10
03/12
11/13
07/15
04/17
12/18
08/20
Source:
S&P
Global
Market
Intelligence
(LCD).
432
376
368
171
173
111
128
82
102
101
92
83
104
Some Declines In Mortgage Delinquencies And Forbearance, But Majority Are Extending Forbearance
Residential mortgages 30+ days past due declined to 6.9% of mortgages at July month end from 7.8% peak in May per Black Knight data. Note this number encompasses all loans past due including those in forbearance, but it excludes loans in forbearance that are making their full monthly payment. Similarly, residential mortgages in forbearance are down to 7.2% of mortgages (including portfolio/retained loans) as of August 23 rd , after peaking at 8.6% in early June per MBA survey of mortgage servicers. Key unknown is performance of loans when forbearance ends – 5% of mortgages became delinquent as initial forbearance ended and 58% extended forbearance, while remaining 37% returned to performing or were paid off. The next major forbearance hurdle is September when about 2 mil mortgages in forbearance are set to expire, many which seem to have been extended when their initial forbearance period ended in June – latest data is as of August 25th. Figure 14: Share of Delinquent Mortgages Down from Recent Peak, Including Delinquent Loans in Forbearance … Share
of
mortgages
30+
days
past
due
including
those
in
forbearance
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
Source:
Black
Knight,
Inc.
Include
all
mortgages
30+
days
past
due
but
not
in
foreclosure.
Figure 15: … With Share of Mortgages in Forbearance Also Down from Peak … Share
of
mortgages
in
forbearance
by
loan
count
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
Source:
Mortgage
Bankers
Association.
Forbearance
data
as
of
August
30,
2020.
Figure 16: … As About 30% of Mortgages That Exited Forbearance Returned to Performing, While About 60% Extended Forbearance Status
of
mortgages
that
have
exited
initial
COVID-19
related
forbearance
Became Delinquent 5%
Source:
Black
Knight
and
J.P.
Morgan.
As
of
August
25,
2020
7.8% 7.6% 6.9% 6.5% 3.4% 3.2% 3.3% 3.4% 7.2% Returned
to Performing 31%
Forbearance Extended 58%
Paid
Off 6%
Loans In Forbearance Highest At Truist; Positive Commentary Around Payment Status
Truist had the highest share of loans in forbearance at 6/30 at 11.2% of total loans, followed by Wells Fargo at 9.7%
of loans, and both had higher levels of consumer and commercial loans in forbearance versus peers. Wells Fargo’s ratio is likely overstated some as it includes total loans put into forbearance and thus includes loans that have already rolled off. Most banks disclose total loans in forbearance except Citizens, which only reports consumer loans. Some positive comments about loans in forbearance that are still making payments. Share of retail customers in forbearance making at least one payment were: 61% at BofA, 50% at JP Morgan, 37% at Fifth Third, and 35% at Wells Fargo. At Citi, about 45% of US card clients and 43% of Asia retail clients made at least one payment, and 57% of Mexico card clients made a payment in June alone. At Regions, 34% of mortgage clients and 56% of card clients made at least one payment in forbearance. Table 1: Disclosed Loans With Deferred Payments Highest at Truist Loans
in
deferred
payment
programs
due
to
COVID-19
Disclosed Total
Amount
($
mil)
As
%
of
Loans
As
of
Residential Mortgages
&
Home
Equity
Residential Mortgage
Home Equity
Credit Card
Auto
Other Consumer
Total Consumer
C&I
CRE
Total Commercial
Disclosed Total
BAC
36,200
5.0%
NA
NA
7%
2.0%
NA
6.3%
NA
NA
2.0%
3.6%
7/23
C
(1) 25,307
13.5%
14.7%
6.3%
7.5%
NA
5.3%
7.1%
NA
NA
1.3%
3.7%
6/30
CFG
3,500
4.7%
5.6%
3.3%
2.3%
8.1%
6.5%
6.0%
NA
NA
NA
2.8%
6/30
FITB
6,710
7.7%
8.9%
4.1%
7.4%
9.5%
3.9%
8.0%
2.6%
12.0%
4.7%
5.8%
6/30
JPM
45,064
8.7%
NA
NA
3.1%
4.6%
6.3%
NA
NA
3.2%
4.6%
6/30
PNC
12,884
6.4%
7.2%
5.6%
4.0%
12.7%
9.8%
7.8%
3.4%
5.4%
3.8%
5.0%
6/30
RF
5,691
7.2%
9.2%
3.2%
2.2%
7.7%
3.1%
6.4%
NA
NA
6.2%
6.3%
6/30
TFC
35,232
NA
NA
NA
4.3%
NA
NA
11.0%
NA
NA
11.3%
11.2%
6/30
USB
17,500
NA
9.5%
NA
0.8%
NA
NA
5.8%
2.9%
13.1%
5.5%
5.6%
6/30
WFC
91,018
13.5%
13.7%
11.6%
8.8%
13.4%
6.1%
12.5%
7.3%
11.1%
7.4%
9.7%
YTD
through
6/30
Median
7.4%
9.2%
4.9%
4.0%
8.1%
5.7%
6.8%
3.2%
11.5%
4.7%
5.3%
Source:
Company
reports.
(1)
Includes
all
regions.
Leveraged Loan And High Yield Bond Defaults Have Picked Up YTD
Leveraged loan and high yield bond default rates rose to 4.38% and 5.77% respectively in August – this is close to or above 2016 levels, but well below peaks seen in the financial crisis. Defaults are expected to continue to rise to 5% for leveraged loans and 8% for high yield bonds through the rest of 2020 per JP Morgan High Yield and Leveraged Loan Research. Defaults year-to-date have been led by energy due to drop in oil prices and demand earlier in the year – we expect a further pick up in industries impacted by COVID-19 such as retail, gaming & leisure, and food & beverage. The large amount of telecom and cable & satellite defaults were caused by two large defaults unrelated to COVID-19.
Figure 17: Leveraged Loan and High Yield Default Rates Continued to Rise Through August, but Remain Below Financial Crisis Peaks Last
twelve
months
annualized
default
rate
by
dollar
amount
as
of
August
31,
2020
Source:
J.P.
Morgan
High
Yield
and
Leveraged
Loan
Research.
Figure 18: Defaults Have Risen Sharply in Energy Year-to-date
defaults
as
of
August
31,
2020,
$
bil
Source:
J.P.
Morgan
High
Yield
and
Leveraged
Loan
Research.
16.0% Leveraged Loans High Yield 14.0% Latest 12.0% High Yield: 5.77% Leveraged Loans: 4.38% 2020 Forecast 8.00% 5.00% 10.0%
8.0% JP Morgan Credit Research 2020 Forecast 6.0%
4.0%
2.0%
0.0% $50 40.3 $40 Leveraged Loan High Yield Bond Two large defaults unrelated to COVID $30
$20 16.7 14.4 13.2 $10 6.3 6.5 3.0 3.0 3.0 2.6 2.5 2.4 $0
High Yield Spreads Have Reversed 75% Of March Widening
High yield spreads are currently at 588bp, which is 179bp above their 2020 lows, as they have reversed about 75% of their 2020 trough-to-peak widening and have fallen 551bp from March highs. Spreads in all sectors remain above their 2020 lows, with transportation up most by far at 709bp above. Gaming, lodging, & leisure spreads are 329bp above, and most other sectors are 100-200bp higher.
Table 2: High Yield Spreads Have Reversed About 75% of 2020 Trough-to-Peak Widening … High
yield
spread
to
worst,
basis
points
Figure 19: … And Have Fallen Substantially from March Peaks High
yield
spread
to
worst,
basis
points
1,200
1,100
1,000
900
800
700
600
500
400
300
Source:
J.P.
Morgan.
As
of
September
8,
2020.
Source:
J.P.
Morgan.
As
of
September
8,
2020.
Spread
Change
Versus
GFC
High
2020
High
2020
Low
9/8/2020
GFC
High
2020
High
2020
Low
Automotive
3,659
994
316
516
(3,142)
(478)
200
Broadcasting
3,588
989
292
693
(2,895)
(296)
402
Cable
and
Satellite
2,041
893
338
372
(1,669)
(522)
33
Chemicals
2,075
1,107
386
589
(1,486)
(518)
203
Consumer
Products
2,079
854
264
426
(1,652)
(428)
162
Diversified
Media
3,786
1,230
535
786
(3,001)
(445)
251
Energy
1,615
2,395
705
942
(673)
(1,453)
237
Financial
Spread
3,274
1,032
351
576
(2,698)
(456)
225
Food
and
Beverages
1,772
898
294
446
(1,326)
(452)
152
Gaming
Lodging
&
Leisure
2,632
1,216
258
587
(2,045)
(629)
329
Healthcare
1,410
1,025
357
494
(916)
(531)
137
Housing
2,233
861
330
451
(1,782)
(410)
121
Industrials
1,531
1,015
343
626
(905)
(388)
283
Metals
and
Mining
1,652
1,320
446
731
(921)
(589)
285
Paper
and
Packaging
1,857
838
248
424
(1,433)
(413)
176
Retail
1,926
1,458
616
681
(1,244)
(777)
65
Services
1,871
978
335
569
(1,302)
(408)
234
Technology
2,280
907
312
454
(1,826)
(453)
142
Telecommunications
2,431
1,291
422
464
(1,967)
(826)
43
Transportation
1,982
1,863
299
1,008
(973)
(855)
709
Utility
1,900
707
272
421
(1,479)
(286)
149
Median
2,041
1,015
335
569
(1,486)
(456)
200
Aggregate
Spread
1,929
1,139
409
588
(1,342)
(551)
179
Criticized Commercial Loans Spiked Very Sharply Further At All Our Banks In 2Q
Criticized commercial loans jumped very sharply at all our banks in 2Q and rose 49% qoq on average. Comparisons among banks are difficult because banks use different criteria for segmenting loans into buckets. Criticized commercial loans were up most at Truist, rising 124% qoq, followed by Regions at +68% qoq and JP Morgan at +54%. Many banks saw sharper qoq increases in 2Q than in 1Q as the macro environment deteriorated. Criticized commercial loans rose to 3.7% of total loans (excluding PPP loans) on average in 2Q, from 2.6% in 1Q20 and 2.1% in 4Q19. This increase in the ratio in 2Q was partly because of rapid repayment of the earlier surge in revolver draws. Citi recently disclosed criticized exposures (both funded and unfunded), which have risen 139% since YE’19 to $73 bil or 9.3% of commercial exposures. Table 3: Criticized Loans Jumped Very Sharply Further in 2Q at All Our Banks Except PNC … Criticized
commercial
loans,
$
bil
QoQ
Change
$
Amt
1Q20
2Q20
1Q20
2Q20
BAC
51.9%
49.1%
17.40
25.95
CFG
23.3%
41.8%
3.74
5.31
FITB
59.6%
46.1%
6.09
8.90
JPM
75.7%
54.4%
11.33
17.49
PNC
28.4%
7.9%
8.38
9.04
RF
12.1%
67.5%
2.52
4.23
TFC
(1) 34.8%
124.3%
4.91
11.01
USB
191.9%
31.7%
8.43
11.10
WFC
21.3%
53.4%
24.88
38.17
Median
34.8%
49.1%
C
(exposures)
NA
NA
NA
72.58
Source:
SNL
and
J.P.
Morgan
calculations.
Table 4: … Rising to 7.2% of Non-PPP Commercial Loans … Criticized
commercial
loans
/
non-PPP
commercial
loans
4Q19
1Q20
2Q20
BAC
2.2%
3.0%
5.0%
CFG
5.3%
5.7%
8.8%
FITB
5.5%
7.8%
12.7%
JPM
1.3%
2.0%
3.4%
PNC
4.1%
4.5%
5.4%
RF
4.3%
4.3%
7.5%
TFC
(1) 2.2%
2.6%
6.3%
USB
2.0%
5.0%
7.2%
WFC
4.0%
4.4%
7.6%
Median
4.0%
4.4%
7.2%
C
(exposures)
3.8%
NA
9.3%
Source:
SNL
and
J.P.
Morgan
calculations.
Table 5: … And to 3.7% of Total Non-PPP Loans on Average Criticized
commercial
loans
/
total
non-PPP
loans
4Q19
1Q20
2Q20
B...
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