26 May 2021
US bank portfolio management team
With each passing quarter since the pandemic began to disrupt the economy in early 2020 and the outlook for U.S. banks was upended, the industry has managed to successfully retrench and position itself to help lead the economy’s broader recovery. Nearly all publicly traded U.S. banks have released first-quarter results as of this writing, and the industry as a whole continues to exceed our expectations. Based on our analysis, here are nine salient points about the current state of banks and the implications for equity investors.
U.S. banks' capital levels have surged since a 2009 low
U.S. banks' ratio (%) of tangible common equity to risk-weighted assets, 2001–2020
Source: Federal Deposit Insurance Corp., January 2021. A tangible common equity to risk-weighted assets ratio is used to assess the potential for future bank financial stress based on commonly measured capital ratios.
U.S. banks appear to us to be fundamentally strong, with historically high levels of capital and liquidity. As the economy has reopened, credit fundamentals have been materially better than had been expected a year earlier. Strong results from regulators’ latest round of stress tests to assess major banks’ abilities to weather further economic shocks triggered a further loosening of restrictions related to share buybacks. We view these developments as a testament to the industry’s capital strength and improved underwriting. In addition, we believe that the most recent stimulus package that Congress approved in March should further support the economy and reduce credit costs. As these trends persist, we expect U.S. bank earnings to accelerate throughout 2021.
1 “KBW Bank Earnings Wrap-Up 1Q21, v. 2: Banks Continue to Deliver EPS Beats on Mostly Favorable Credit Trends,” Keefe, Bruyette & Woods, April 23, 2021.
2 Earnings per share (EPS) is a measure of how much profit a company has generated calculated by dividing the company's net income by its total number of outstanding shares.
3 U.S. Federal Reserve press release, March 25, 2021.
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Despite the heightened market volatility, the Global Equities Diversified Income (GEDI) strategy has demonstrated resilience. We have made selective portfolio adjustments to address the rising risks and believe that by combining four powerful pillars—growth, value, income, and options—the strategy is well positioned to potentially deliver attractive yield alongside long-term capital growth.
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Global supply chains are being reshaped by deglobalisation, geopolitics, and the race for energy and technological security, shifting the focus from efficiency toward resilience. In this environment of higher costs, persistent inflation pressures, and constrained supply, real assets may play an increasingly important role in helping investors navigate uncertainty and capture long‑term structural trends.
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The annual meeting of Chinese mainland’s National People’s Congress (NPC) is concluding this week. The China equity team shares its latest views on key policy developments and analyses the main growth engines supporting high quality growth.
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