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Bank of America

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JPMorgan Chase

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Wells Fargo

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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


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'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

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Morgan Stanley

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. 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


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.


JPMorgan Chase earned $17.4 billion in 2010, a 48% rise over the previous year and the largest profit in the bank's history. It also returned 15% on tangible common equity -- the highest among the big U.S. banks in 2010.

Larger-than-expected releases of loan loss provisions helped the bank earn $1.12 per share in the fourth quarter, beating consensus estimates of 99 cents per share.

Analysts at FBR Capital Markets expect JPMorgan to continue to invest in new bank branches, citing company projections JPMorgan will add 1,500 to 2,000 branches over the next five years, "equal in size to a top ten regional bank"-according to FBR.

"Although this strategy may weigh on earnings in the early years, a strongdeposit base can be valuable in the long term as a low-cost funding base," the analysts wrote in a recent note.

Credit quality continued to improve. As of December 31, JPMorgan's non performing asset ratio was 1.84%, improving from 2.07% a year earlier. The fourth-quarter net charge-off ratio was 2.83% and reserves covered 4.44% of total loans as of December 31. The net charge-off ratio peaked at 4.26% in the first quarter of 2010.

Wells Fargo

Wells Fargo earned 61 cents per share in the fourth quarter, its best quarterly performance in more than three years. Earnings were still weighed down by $1.7 billion in special expenses, but "revenue and credit trends are tracking well," according to a report from Oppenheimer & Co. analyst Chris Kotowski.

Wells grew its loan book by 0.5% from the end of the third quarter to the end of the fourth quarter, a small number, but one identified by Oppenheimer analysts as "the aspect...that we were most pleased with," in Wells Fargo's fourth quarter earnings.

Analysts at FBR Capital Markets were less impressed, however, blaming a .09% contraction in net interest margin on "strong deposit growth without coinciding loan growth."

The sudden resignation of Wells Fargo CFO Howard Atkins caused some pressure on the stock, but while analysts complained about the lack of an explanation surrounding Atkins' departure, most, did not change their overall outlook on the company. One notable exception was Institutional Risk Analytics' Christopher Whalen, who published a

damning report

downgrading his view on the stock to "negative," and arguing the bank's "public behavior suggests significant problems in the bank's internal systems and controls as defined by the Sarbanes-Oxley law."

Bank of America

As the cheapest stock among the U.S. megabanks, it is to be expected that Bank of America has its share of doubters in the analyst community.

"Does limited downside translate into a near-term recognition of potential upside based on normalized earnings that might not be achieved until 2014?" asked Stifel Nicolaus analyst Christopher Mutascio in a recent report. Only for long-term investors, and let's not kid ourselves that there are really any of those out there, was effectively how Mutascio answered his rhetorical question.

Those doubters may even extend to the Federal Reserve, which rejected the Bank's bid to raise its dividend in the second half of this year, according to a filing Wednesday with the Securities and Exchange Commission. The bank will submit a revised capital plan to the Fed in the hope of getting the regulator to reverse its decision.

One Bank of America bull, however, is John McDonald of Bernstein Research.

"Management has seized control of the franchise and is beginning to execute on strategies for restoring profitability to normalized levels, running down non-core assets, adjusting to new industry realities, and building excess capital for deployment down the road," McDonald wrote in a March 9 report following the company's recent meeting with investors and analysts in New York City.


Citigroup's recent decision to execute a 10-for-one reverse stock split drew mostly jeers from commentators as a move that was all about optics. Its fourth quarter earnings were probably the most disappointing of the group, driven by weak trading and high expenses such as $433 million in legal costs. Citigroup's earnings of four cents per shares missed Street estimates of eight cents.

Citigroup shares sold off further this quarter in a move Rochdale Securities analyst Richard Bove attributes to concerns over Arab unrest and anxiety over Japan's earthquake and related nuclear fears. Citigroup, after all, is the most international of U.S. banks, getting 79% of its profits in 2010 from outside the U.S.

In a report after the release of the poor first quarter results, Sandler O'Neill analyst Jeff Harte cautioned investors against assuming the weak trading performance would continue for Citigroup in 2011.

"Management cited continued 'strong' client activity levels and we expect a more favorable macro trading environment during the seasonally strong

first quarter. Accordingly, we expect a trading revenue rebound

in the first quarter," Harte wrote.


Written by Dan Freed in New York


Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.