With large U.S.banks reporting earnings starting today, all eyes are set on JPMorgan Chase & Co., the healthiest of the large banks, which will be reporting today.
JPMorgan may report a second- quarter revenue decline of about 0.8 percent to $24.9 billion, according to the average estimates of analysts surveyed by Bloomberg. Barclays Capital analyst Jason Goldberg said in a report that JPMorgan’s relative stability will help it gain market share from other banks. He also said lower losses will help the bank capture some profits by releasing cash from reserves it had set aside for loan losses.
Revenue at Citigroup, which reports results a day later, may fall 10 percent to $19.9 billion, with more than half the decline tied to assets the company has tagged for sale. Morgan Stanley’s banking analyst Betsy Graseck expects Citi’s revenues from regular banking activities like writing loans and trading securities to be lower.
JPMorgan, led by CEO?Jamie Dimon, 55, may say second- quarter profit climbed 6.2 percent from a year earlier to $5.09 billion according to the average estimate of analysts surveyed by Bloomberg. Citigroup may say profit rose 14 percent from the same period last year to $3.07 billion.
Slowdown in securities
Most Wall Street analysts fear that second quarter earnings will be hurt by settlements with investors over poor-quality mortgage and municipal bonds. There’s also been a slowdown in trading of stocks, bonds and other securities, which has led several banks to cut jobs. Investment bank Goldman Sachs Group Inc. has already informed the New York Department of Labor that it plans to eliminate 230 jobs beginning in September.
Keith Horowitz, a Citigroup analyst, warned that fixed income revenue at the country’s largest banks likely dropped 30 percent compared with the first quarter. He estimates equities trading declined 15 percent. Many investors have cut back on trading because of the uncertainty surrounding the European debt crisis. Both bits of bad news will hurt results at banks with large trading desks like Goldman, Morgan Stanley and Citigroup.
The results will also offer a snapshot of how consumers and businesses have fared as the economic recovery began to slow in May. They’ll show whether people and companies are paying their bills on time, taking out more loans and making more purchases with credit cards.
JPMorgan and Citigroup may counter declines in trading revenue with an increase in fees from?investment banking, which includes managing sales of equities and bonds as well as advising on mergers and acquisitions.
The sovereign debt crisis in Europe and slowing economic growth in the U.S. depressed trading volume and curtailed revenue in the second quarter as investors bought and sold fewer bonds and equities, according to analyst Chris Kotowski at Oppenheimer & Co. in?New York.
U.S.central bankers said last month that the economy will expand 2.7 percent to 2.9 percent this year, down from forecasts ranging from 3.1 percent to 3.3 percent in April. The revised outlook was the second time this year that Federal Reserve officials lowered their forecasts for growth.
Total trading revenue at the five biggest Wall Street banks –?Goldman Sachs Group Inc. (GS),?Morgan Stanley (MS), JPMorgan, Citigroup and Bank of America — may have dropped 4.4 percent to $21.7 billion in the second quarter, compared with the same period last year, and 17 percent from last quarter, said Chris Kotowski, analyst at Oppenheimer & Co. in?New York. Trading accounted for almost a quarter of the firms? revenue last year.
?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 led by David Konrad wrote in a June 29 research note. They projected an 8 percent drop in industry revenues from last year.
Analysts say they will be watching trading revenue in Thursday’s report for clues to the severity of the slowdown in investment banking results in reports in coming days from Goldman Sachs, Morgan Stanley and Citigroup.
“Most people have kind of written off the second quarter to slow U.S. economic growth,” said Peter Kovalski, a money manager at Alpine Woods Capital, which owns JPMorgan and other bank?stocks?in its $6 billion portfolio.
“What is more important is the outlook that is talked about for the third quarter and the second half of the year,” Kovalski said.
Dimon said in an investor conference June 2 that he was encouraged by an increase in demand for loans from mid-sized companies. JPM’s average balance of middle market loans in its commercial banking division was up 13 percent in the first quarter from a year earlier. Those loans amounted to 6 percent of all JPMorgan’s outstanding loans and less than 2 percent of its $2.2 trillion of assets.
Other banks reporting results within the coming week are Bank of America Corp., Goldman Sachs Group Inc., Wells Fargo & Co., and Morgan Stanley.
Sources: AP, Bloomberg, Reuters