EARNINGS OUTLOOK: Same Story, Different Quarter for Banks (10/8/09 WSJ)

sub0 · Oct 7, 2009

Came out after hours today from the Wall Street Journal. Do you think this is good or bad news for the bank stocks? Looks like the first inside look into earnings from research firm Keefe, Bruyette and Woods.

source:
http://online.wsj.com/article/SB125496650465272431.html

Same Story, Different Quarter for Banks
It likely will be business as usual when big U.S. banks start reporting third-quarter results next week: depressingly familiar, with shrinking earnings and higher loan losses.

Research firm Keefe, Bruyette & Woods Inc. expects earnings for banks it follows to decline by an average of 28% from last year's third quarter, marking the 11th consecutive quarter of lower profits.

Income from capital-markets businesses is expected to be weaker at some banks, mortgage banking to be less robust and commercial lending anemic. Banks are forecast to set aside huge piles of money to cover rising losses from soured loans, and assets will continue to shrink.

But at least the decline in earnings will be less severe than in some previous quarters, analysts project.

At J.P. Morgan Chase & Co., the largest U.S. bank by market capitalization, which reports next Wednesday and has weathered the recession better than most U.S. banks, the average analyst estimate is for a profit of $1.8 billion, according to Thomson Reuters.

Investment banking is expected to show strong results, but the New York bank is likely to be bruised by another net loss in its credit-card business.

Citigroup Inc., the No. 4 bank, is expected to post a third-quarter loss of $2.3 billion when it reports results next Thursday, according to Thomson Reuters. That would be the New York bank's first quarter of red ink since 2008.

Citigroup sold its stake in Nikko Cordial Securities for $8.7 billion; but the costs of the bank's conversion of preferred stock into common shares as a result of the U.S. government's 34% stake in the company will make for messy earnings.

Analysts following Bank of America Corp., the No. 2 bank, expect a loss of about $630 million when the Charlotte, N.C., bank reports third-quarter results Oct. 16, according to Thomson Reuters. All eyes will be on consumer-loan delinquencies, about which executives have been optimistic.

Still, loan-loss reserve building, declining profitability in credit-card lending, debt-valuation adjustments and a $425 million charge related to the bank's decision to exit a loss-sharing agreement with the U.S. government related to the January purchase of Merrill Lynch likely will result in a loss.

At Wells Fargo & Co., which reports results Oct. 21, the average analyst estimate is for a profit of $1.6 billion.

Losses from soured mortgages are expected to rise, and revenue from mortgage originations is likely to decline, though some analysts said mortgage-banking revenue might have held up better than expected.

The San Francisco bank, the No. 3 lender, now absorbing its acquisition of Wachovia Corp., "should remain substantially profitable despite reserve additions," Oppenheimer & Co. analyst Chris Kotowski wrote in a report.

Write to Matthias Rieker at matthias.rieker@dowjones.com
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EARNINGS OUTLOOK: Same Story, Different Quarter for Banks (10/8/09 WSJ)

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