Challenges Ahead For US Banks
$DIA, $SPY, $QQQ, $VXX, $BAC, $C, $JPM, $WFC, $GS
Some Wall Street analysts are predicting a rotten/grim/dismal Y 2016 for US banks.
Analysts say it has been the worst start to the year since the financial crisis of Y’s 2007-2008 and expect poor Q-1 results when reporting begins this week.
Concerns about economic growth in China, the impact of persistently low Crude 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% decline on average in earnings from the 6 biggest US banks, according to Thomson Reuters I/B/E/S data.
Some banks, including Goldman Sachs Group Inc, (NYSE:GS) are expected to report the worst results in over 10 years.
This spells trouble for the broad financial sector, since banks typically generate at least a 33% of their annual revenue in Q-1 of the year.
Investors will get some insight Wednesday
Earnings season kicks off with JPMorgan Chase & Co (NYSE:JPM) followed by Bank of America Corp (NYSE:BAC), and Wells Fargo & Co (NYSE:WFC) Thursday, Citigroup Inc (NYSE:C) Friday, and Morgan Stanley (NYSE:MS) and Goldman Sachs Group Inc (NYSE:GS) Monday and Tuesday, respectively, next week.
The biggest challenge has been fixed-income trading, where regulators have placed 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. Several bank executives have warned about declining quality of energy sector loans.
Global investment banking fees for completed M&A, and stock and bond underwriting, totaled $15.6-B in Q-1, a 28%decline for the year-ago period, according to Thomson Reuters.
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 1st 2 months of the year.
Analysts have been lowering Q-1 estimates over the last month in light of business pressures.
They expect JPMorgan to report adjusted earnings of 1.30/shr, Bank of America to report 0.24/shr, Wells Fargo 0.99/shr, Citigroup to report 1.11/shr, and Morgan Stanley to report 0.63/shr. Goldman is expected to report 3.00/shr, the lowest Q-1 earnings since before the financial crisis.
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.
Q-1 is going to be ugly and do not think that necessarily gets recovered in 2-H of the year, there are a lot of challenges ahead.
Monday, US major stock market indexes finished at: DJIA -20.55 at 17556.41, NAS Comp -17.29 at 4833.40, S&P 500 -5.61 at 2042.07
Volume: trade was light with about 890-M/shares exchanged on the NYSE
- Russell 2000 -3.6% YTD
- NAS Comp -3.5% YTD
- S&P 500 -0.1% YTD
- DJIA +0.8% YTD
| HeffX-LTN Analysis for DIA: | Overall | Short | Intermediate | Long |
| Neutral (0.18) | Neutral (0.06) | Bullish (0.27) | Neutral (0.22) |
| HeffX-LTN Analysis for SPY: | Overall | Short | Intermediate | Long |
| Bullish (0.27) | Neutral (0.24) | Neutral (0.17) | Bullish (0.39) |
| HeffX-LTN Analysis for QQQ: | Overall | Short | Intermediate | Long |
| Bullish (0.25) | Bullish (0.25) | Neutral (0.19) | Bullish (0.31) |
| HeffX-LTN Analysis for VXX: | Overall | Short | Intermediate | Long |
| Bearish (-0.31) | Bearish (-0.36) | Neutral (-0.23) | Bearish (-0.33) |
Stay tuned…
HeffX-LTN
Paul Ebeling
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