Analysts do not expect the first quarter report to be a major catalyst for banks, given continuing pressure on margins, slowing capital markets revenues, a seasonal softening in loan growth and an expected decline in mortgage banking income.
"Despite rising 1Q estimates, given 1) sequentially slowing trends throughout the quarter, and 2) our view that 1Q beats will not be large enough to significantly raise investor views of long-term earnings power - we remain on the sidelines with most of these names," Citigroup analyst Keith Horowitz said in an April 2 report. "Given the stocks' recent runs, looking out over the next 12 months we believe higher valuations are more likely to be dependent on higher earnings power rather than a repeat of last year's large-scale multiple expansion."
For universal banks includingBank of America (BAC), JPMorgan Chase and Citigroup (C) fundamentals appear to have stalled, according to Atlantic Equities analyst Richard Staite. "Outside of principal investment gains and other market-driven revenues, fundamental top-line growth is fairly modest at the moment as the capital markets recovery remains in fits-and-starts mode," he wrote. "Seasonal factors have helped drive sequential improvements in some areas, but [year-on-year] revenue growth is mid-single digits, outside of principal investments. Near term, we see nothing to get excited about."Longer term, a higher return on equity remain "a leap of faith," Staite said, with much uncertainty surrounding banks abilities to adjust to a new regulatory environment. Analysts will likely remain focused on how banks manage their expenses, given continuing pressures on the topline. Deutsche Bank analyst Matthew O'Connor expects to see a decline quarter-on-quarter as banks reported a number of lumpy one-time items. The big banks, specifically Bank of America and Citi, are still in restructuring mode, shedding assets and laying off employees, as they adjust to new rules and a different competitive landscape. Analysts have hailed the downsizing effort, but execution risks remain a key challenge, so the focus will be on how much progress the banks are making in meeting their targets.
Here is a round-up of what to expect from the big four banks.
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