US banks set to suffer from trading slump

ANALYSTS have slashed their forecasts ahead of the slew of US banks reporting third quarter earnings this week, as concerns over a steep fall in trading activity and the housing foreclosure ruckus in the States weighed on expectations.

Wall Street bank shares had rallied last week after JP Morgan topped analysts’ consensus earnings forecasts of 90 cents per share with $1.01 per share.

But the sector has since taken a battering at the hands of investors as it suffers a probe into illegal mortgage foreclosure practices and fears over the earnings impact of a slowdown in Wall Street securities activity.

The banks reporting next week are widely expected to record an uptick in profits due to lower one-off impairment charges, though analysts are concerned that the trading slump over the summer will have disproportionately hit investment banking revenues.

Citigroup, which reports third quarter earnings today, is expected to post earnings of 5.7 cents per share, down from an analyst consensus of 6.25 cents per share just a week ago, according to Thomson Reuters data.

Predictions for Goldman Sachs earnings per share, revealed tomorrow, have also dropped sharply over the week to $2.28 per share, while Bank of America, also reporting tomorrow, is now thought likely to post earnings of under 10 cents per share.

Morgan Stanley is expected to earn between 15 and 20 cents per share, down from 38 cents a year ago.

Wall Street has been hit with a barrage of gloomy predictions in recent weeks, including renowned analyst Meredith Whitney’s prediction that 80,000 investment bankers are likely to be culled in the next two years.