What to expect from the big US bank results this week – JP Morgan, Wells Fargo, Bank of America, Citigroup, Morgan Stanley, and Goldman Sachs
Investors will get their first look this week at just how bad 2016 is expected to be for some of the worlds biggest banks.
JP Morgan Chase has already released results for its first quarter, managing to beat analyst expectations, though profits still bombed by seven per cent.
A Reuters poll revealed that analysts are forecasting a 20 per cent decline on average in earnings from the six biggest US banks. The banks share price performance this year reflects that: Financials have been the worst-performing sector on the S&P 500 index so far this year, down 7.3 per cent to 11 April.
Tomorrow we will hear from Bank of America and Wells Fargo, Citigroup on Friday, and Morgan Stanley and Goldman Sachs on Monday and Tuesday respectively next week.
BlackRock, PNC Financial Services, Progressive, Charles Schwab and Regions Financial will add to the flurry of financials reporting.
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Lower results have been put down to commodity and oil prices failing to recover, the continued slowdown in China and emerging markets, interest rates in the US missing increase targets and remaining at record lows elsewhere, ever climbing regulatory costs, and burdensome capital requirements.
Provisions for loans to the energy industry will also be of interest to investors. JP Morgan already revealed it was setting aside a huge amount to cover bad loans.
Analysts are generally in agreement that this will the worst start to a new year for the banking industry since since the 2007-2008 financial crisis.
IG analyst Chris Beachamp said:
With rock bottom interest rates, a lack of merger and acquisition activity and an increasingly tough regulatory environment to operate within, banking stocks are expected to suffer over the coming weeks. However, given expectations for this earnings season are at rock bottom, perhaps the saving grace will be the fact the bar is set so low.
A banking share sell off earlier in the year, sparked by concerns over the health of European banking giants like Deutsche Bank, has been contained though share prices remain subdued.
Investment banking is one area that is expected to do especially badly. JP Morgan reported earlier today a 24 per cent slide in its investment banking revenue.
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This has been somewhat offset by a recovery in stock market activity in March, though low trading volumes and volatility in January and February mean that banks are now facing an up hill battle to get back on track.
Investment banking fees fell 29 per cent in the first three months of 2016, according to Thomson Reuters data, making it the slowest first-quarter since 2009.