Analysts Expecting Rough Earnings Season for Banks
Bloomberg indicates this morning that consensus revenue estimates for banking stocks are particularly gloomy this quarter. As Wall St.’s star players struggle to stay in the black and cope with the new slate of federal regulations, analysts think they can’t have it both ways. JP Morgan (NYSE:JPM) will be the first bank to report its second quarter earnings tomorrow, with consensus estimates targeting a drop in revenue by 0.8 percent to $24.9 billion. Citigroup (NYSE:C), who will report its results on Friday, is expected to drop nearly 10% from last quarter’s revenue total, “with more than half of the decline tied to assets the company has tagged for sale.”
American financials (NYSE:XLF) were hard hit the in the most recent quarter by very low volume trading, which analysts say resulted from uncertainty over the debt crisis in Europe and a sluggish recovery at home. Trading revenues, which accounted for nearly 1/4 of banks total revenues in 2010, are expected to fall by 17% from last quarter at the street’s five biggest banks, JP Morgan, Citi, Bank of America (NYSE:BAC), Goldman-Sachs (NYSE:GS), and Morgan Stanley (NYSE:MS). “Investors are likely to be disappointed with second- quarter results for the universal banks as the combination of challenging trading and interest rate environment is likely to result in declining revenue trends,” KBW Inc. analysts said.
Here’s your previews for this week’s big bank earnings: “Citigroup, Inc. Second Quarter Earnings Sneak Peek“ and “JPMorgan Chase Second Quarter Earnings Sneak Peek“.
A loan bright spot for the financials is that increased activity in their M&A departments may help to counterbalance some of the losses they expect to see from diminished trading. JPM and Citi are both expected to increase investment banking fees to help retain more earnings. Citi (NYSE:C) has been particularly hard hit by poor performances from specific branches such as its Citi Holdings unit, which the bank is currently peddling to offload. The struggling outfit could post a $1.59 billion plunge in revenue, say analysts.
FBR Capital Markets analyst Paul Miller sums up the challenge banks (NYSE:KBE) face this quarter, “The street is going to be looking at revenue growth,” which could be difficult for banks to produce in the current economic environment. “You need the economy to work, you need rates to go higher and you need to see continued improvement in credit.”