What to watch when the banks report earnings

April 11, 2012 

NEW YORK (AP) - Spring cleaning arrived early for big banks this year.

They took care of some big uncertainties between January and March. Federal Reserve stress tests, a settlement on foreclosure abuses and the imminent threat of a Greek default are all behind them.

Large bank stocks soared more than 40 percent in the first quarter, powering a rally in the broader stock market. But when banks start reporting quarterly results Friday, the picture won't be so clean.

Median earnings for the largest banks are expected to drop 13 percent, according to the brokerage Keefe, Bruyette & Woods. "Are expectations too high?" said David Konrad, a bank analyst there. "We believe the answer is 'Yes.'"

Despite the big rally, the volume of stock trading was its lowest since 2006. That's no help for banks, which make money on commissions when they conduct trades for their customers.

Corporate clients are wary about strategic decisions, depriving banks of fees. Stock offerings were down 60 percent and mergers and acquisitions 23 percent in the quarter compared with last year.

One bright spot was that mortgage rates hit a historic low in the first quarter. January and February made up the best winter for resales in five years and led more people to refinance their home mortgages.

That should boost results at large mortgage lenders like Wells Fargo, JPMorgan Chase and Bank of America. But the housing market isn't out of its slump yet, and the gains aren't expected to be that large.

Low interest rates also spurred large corporations like McDonald's and IBM and smaller ones like CIT Group to raise money by issuing debt. It was the strongest quarter for debt issuance since 1999.

That will especially burnish results at JPMorgan, which ranked first in debt underwriting, according to data company Dealogic.

Bank earnings can reflect the health of the economy. They serve Americans who need mortgage loans and use credit cards, small businesses that need loans and large corporations that raise money in the financial markets.

Here's what to expect as the major banks report. Expectations are compiled from analysts surveyed by FactSet, a data provider.

JPMORGAN CHASE

- Reports: Friday.

- Forecast: Profit of $1.14 per share on revenue of $24.4 billion.

- What to watch for: Bolstered by a strong balance sheet, JPMorgan has been more aggressive and grabbed market share in key businesses. The bank took the No. 1 spot in the Dealogic rankings for global mergers and acquisitions, and also in debt and equity underwriting. Jason Goldberg, analyst at Barclays, says that JPMorgan made about 9.2 percent of fees in the quarter, which will help earnings. "We expect JPMorgan to set a high bar for the industry this quarter," he says.

WELLS FARGO

- Reports: Friday.

- Forecast: Profit of 73 cents per share on revenue of $20.4 billion.

- What to watch for: As one of the largest issuers of home mortgages in the country, Wells is expected to benefit from lower mortgage rates. Betsy Graseck, a bank analyst at Morgan Stanley, says that Wells will earn more fees from mortgages than other banks. One of the largest lenders in the country to middle-market companies, Wells is also expected to have issued more loans to companies.

CITIGROUP

- Reports: Monday.

- Forecast: Profit of $1.01 per share on revenue of $20 billion.

- What to watch for: Citi is a large underwriter of debt, so the big refinancing activity by corporations will boost fees. Moshe Orenbuch, a bank analyst at Credit Suisse, points out that Citi has been selling assets in China, India and Turkey, which should help first-quarter results.

GOLDMAN SACHS

- Reports: Tuesday.

- Forecast: Profit of $3.37 per share on revenue of $9.2 billion.

- What to watch for: Goldman's last two quarters were disappointing, but the bank could come back with solid results this quarter, says Howard Chen, an analyst with Credit Suisse. Chen says Goldman was more focused than some of its peers because of its solid balance sheet, and the money it makes by trading debt should boost earnings.

BANK OF AMERICA

- Reports: Thursday, April 19.

- Forecast: Profit of 10 cents per share on revenue of $22.8 billion.

- What to watch for: CEO Brian Moynihan has focused on cutting costs and strengthening the bank's balance sheet in recent months. Now the focus turns to the bank's ability to generate earnings, says Jefferson Harralson, bank analyst at KBW. As a large credit card and mortgage loan issuer, Bank of America will be compared to peers such as Wells Fargo and JPMorgan.

MORGAN STANLEY

- Reports: Thursday, April 19.

- Forecast: Profit of 21 cents per share on revenue of $7.5 billion.

What to watch for: Weaker sales and trading will hurt earnings at the investment bank. Morgan Stanley, like Citi, is also vulnerable to taking a large accounting charge when the cost of its debt falls.

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