Earnings Preview: 'Big Four' U.S. Banks

NEW YORK (TheStreet) -- Citigroup(C), Bank of America(BAC), JPMorgan Chase(JPM) and Wells Fargo(WFC) are expected to show improvement in the first quarter over a weak fourth quarter.

The main question is how much they will improve.

Credit fundamentals continue to strengthen, though the pace slowed somewhat in the fourth quarter, according to Derek Pilecki, portfolio manager with Gator Capital Management.

"It will be interesting to see how much of the fourth quarter was cleanup," he says.

If so, and banks were being more aggressive than usual in writing off bad loans, the first quarter should show substantial improvement. If not, and the pace of improvement continues slow, that could be concerning to investors.

Despite improving credit fundamental, revenues are likely to remain challenged, according to Gary Townsend, portfolio manager at Hill-Townsend Capital.

While JPMorgan's $20 billion loan to finance AT&T(T)'s acquisition of T-Mobile USA attracted big headlines, balance sheets are not expanding and net interest margins--reflecting the profit banks make on their loans--will remain essentially unchanged until the Federal Reserve begins raising short term interest rates, Townsend says.

Trading revenues are often a large and unpredictable swing factor in quarterly earnings for Citigroup, JPMorgan and Bank of America, which, unlike Wells Fargo, have large investment banking divisions that go head to head with Goldman Sachs (GS)and Morgan Stanley(MS). Typically, banks' trading performance is similar in each quarter, though there is almost always one outlier. In the fourth quarter, for example, while most banks were caught off guard by a temporary surge in interest rates, JPMorgan appeared to navigate the move more smoothly than its competitors.

Early this month, Bank of America analyst Guy Moszkowski cut estimates on Citigroup and Goldman, arguing in his report that the expect pickup in trading from the fourth quarter was "uninspiring." However, GFI Group(GFIG) CEO Mickey Gooch, whose company trades with the large securities firms, has a more positive outlook.

Also worth keeping an eye on is what banks say about their capital plans. With announcements in recent days regarding dividend hikes and share repurchases, banks are sure to get pushed by analysts for further detail on their longer-term plans, including potential acquisitions.

Here are some specific issues to watch for as the four largest U.S. banks get ready to announce first quarter earnings.