What out for poor performance from US banks
It is widely thought that if banks (and their underlying stocks) struggle then the economy and rest of the market will follow. The last thing this shaky market needs is poor performance out of the banks… Unfortunately if top banking executives are right that is exactly what we are in for this year.
The comment of “Analysts say it has been the worst start to the year since the financial crisis in 2007-2008 and expect poor first-quarter results when reporting begins this week” should be concerning to everyone.
Click here to visit the posting page over at Reuters.
…
U.S. banks’ dismal first quarter may spell trouble for 2016
It is only April, but some on Wall Street are already predicting a rotten 2016 for U.S. banks.
Analysts say it has been the worst start to the year since the financial crisis in 2007-2008 and expect poor first-quarter results when reporting begins this week.
Concerns about economic growth in China, the impact of persistently low oil prices on the energy sector, and near-zero interest rates are weighing on capital markets activity as well as loan growth.
Analysts forecast a 20 percent decline on average in earnings from the six biggest U.S. banks, according to Thomson Reuters I/B/E/S data. Some banks, including Goldman Sachs Group Inc (GS.N), are expected to report the worst results in over ten years.
This spells trouble for the financial sector more broadly, since banks typically generate at least a third of their annual revenue during the first three months of the year.
“What’s concerning people is they’re saying, ‘Is this going to spill over into other quarters?'” Goldman’s lead banking analyst Richard Ramsden said in an interview. “If you do have a significant decline in revenues, there is a limit to how much you can cut costs to keep things in equilibrium.”
Investors will get some insight on Wednesday, when earnings season kicks off with JPMorgan Chase & Co (JPM.N), the country’s largest bank. That will be followed by Bank of America Corp (BAC.N) and Wells Fargo & Co (WFC.N) on Thursday, Citigroup Inc (C.N) on Friday, and Morgan Stanley (MS.N) and Goldman Sachs Group Inc (GS.N) on Monday and Tuesday, respectively, in the following week.
Banks have been struggling to generate more revenue for years, while adapting to a panoply of new regulations that have raised the cost of doing business substantially.
The biggest challenge has been fixed-income trading, where heavy capital requirements, new derivatives rules, and restrictions on proprietary trading have made it less profitable, leading most banks to simply shrink the business.
Bank executives have already warned investors to expect major declines across other areas as well.
Citigroup Inc (C.N) CFO John Gerspach said to expect trading revenue more broadly to drop 15 percent versus the first quarter of last year. JPMorgan Chase & Co’s (JPM.N) Daniel Pinto said to expect a 25 percent decline in investment banking. Several bank executives have warned about declining quality of energy sector loans.
Global investment banking fees for completed merger and acquisitions, and stock and bond underwriting, totaled $15.6 billion in the first quarter, a 28 percent decline for the year-ago period, according to Thomson Reuters data.
Volatility in stock prices and plunging commodities prices caused trading volume to dry up during most of the quarter. Trading activity picked up slightly in March but was not strong enough to offset declines during the first two months of the year.
Analysts have been lowering first-quarter estimates over the last month in light of business pressures. They now expect JPMorgan to report adjusted earnings of $1.30 per share, Bank of America to report 24 cents per share, Wells Fargo to report 99 cents per share, Citigroup to report $1.11 per share, and Morgan Stanley to report 63 cents per share. Goldman is expected to report $3.00 per share, the lowest first-quarter earnings since before the financial crisis.
Matt Burnell, a Wells Fargo banking analyst, said in a research note Friday that capital markets weakness may extend at least into the second quarter.
Analysts said there may be some loan growth outside of the energy sector, and a small uptick in net interest margins, a measure of loan profitability, but overall, the tone was less-than-optimistic.
“The first quarter is going to be ugly and we don’t think that necessarily gets recovered in the back half of the year,” said Jerry Braakman, chief investment officer of First American Trust, which owns shares of Citigroup, JPMorgan, Wells Fargo and Goldman. “There are a lot of challenges ahead.”
(Reporting by Olivia Oran in New York; editing by Lauren LaCapra)
Watch out?
I think it is possibly dangerous to short banks or many stocks except for day trading.
1. The ECB is about to start a TARP program.
(You can already see anticipation of same by rises in European bank stocks)
2. I believe the nearest analogous situation to the US at present is the Weimar Republic.
The US has wasted its 20th century abundance by overspending and over-borrowing. The ONLY way out of this mees is:
Either a total monetary collapse, or creating inflation.
I believe the US will do whatever it takes to create inflation.
The rise in precious metals first, may be the anticipation of new world-wide inflation.
mess not mees above
Manipulators bilding a buffer in the Dollar strangeness ! Day never stop !
Good comments, CFS — it has been difficult/frustrating to try to be a short seller unless you’re really quick as you suggest. The better strategy is to “embrace (lesser) the horror” (remember Rock Hound int he movie Armageddon) — realize all the central banks are going to keep printing/monetizing bad debts — and figure out where disproportionate amounts of all this new “money” will end up going.
I’m slightly worried, Mr Temple, about the alternative scenario of monetary collapse and a stockmarket closure. It’s all very well making “profits” in the market, but as long as they are in accounts held by brokers, their safety is not 100% guaranteed.
I guess nothing in life is 100% guaranteed, when you think about it.
(Except for death and taxes, of course.)
This is why Jim Sinclair recommends GOTS–Get Out of The System. As part of that he recommends not holding stocks in street name, but rather in direct registration or paper certificates.
What do you think Professor?
The precious metals stocks have been the number 1 group the first quarter according to Investors Business Daily-completely under the radar of the investment community. Many of the gold and silver mid- level stocks are up over 100 percent, and are continuing to push upward with strong volume. Still no mention of this in the mainstream media. When it finally hits there, hang on for the ride and don’t get shook out.
And, remember to get one of the last chairs!
CHEMTRAILS…………..usawatchdog………..wonder why we are sick………
The Citi Group chart and JNK both look really bad!
…..lookout….bbbeeelllloooowwwww……… .. ..
good , they deserve each other…………. 🙂
The breakout in the miners…..confirms , bear is dead………
per someone I can not mention……but, I agree 🙂
1256………gold held
HUI…………206 UP $12……..looking good……….Silver is going to explode…….jmho
Yeup, I’m on the bull ride now…
I’ve been in the bear camp for 4 years.. Glad it’s over!
Glad to hear from you Chartster………..
The Sprott Physical Silver Trust has announced a secondary offering to buy $75 million worth of silver. (link) To be expected, PSLV shares took a sharp dive on Friday, frustrating some. One commenter on The Wall St For Main St YouTube channel noted, “I will double down but this offering killed my return for the year in the PSLV.” The frustration is understandable. I
JPM………holding the lid on silver……………Jamie is headed to Alaska, so he said a couple of years ago….. . This is going to be the largest silver hoard on earth………….
The price is going to $100 and people will be crying……….. 🙂
$100 would kind of surprise me.
I bet it goes past $100………
Rickards says……..just to meet M1……..is $5000…….and a 10 to 1 GSR…….is $500.
Turd…..has an interview with Bill Holter at Jdsmindset……worth a listen to concerning Rickards statement on the gold audit.
It is a little disconcerting the offering for PSYLV is as small as $75 million, but perhaps that is all Sprott thought was available in physical silver.
PSLV not PSYLV, of course.
Sprott is a billionaire. It’s understandable, I guess, that when his trust is at a premium to the silver price, he removes that premium by making an offering……so he can collect more fees.
He, profits at the expense of his trust holders, it seems to me.
Sneaky little billionaire……….never get there without a little trickery
The price the price need to go Silver 20 $ you will see sprout silver explode !!!! Cool is the way ! BUY !
AAA !!! TOPeeeerrrr ! https://www.youtube.com/watch?v=qvIUa47x_Oc
“dodge Dave”…………good one……..cheers
AUNFF ended up 33% today.
GOLDMAN……..slammed with $5.1BILLION fine…………zerohedge