U.S. bank profits seen rising; drivers may change
The U.S. consumer, long a key driver of banks' profits, look ready to start passing the baton to corporate borrowers as the biggest financial institutions report fourth-quarter results next week.
[Yeah right - given that 3/4 of the economy is the consumer even IF corporates pick up, earnings have peaked - mish]
"Consumers have really exhausted their demand for taking down additional debt," said Mark Fitzgibbon, director of research at Sandler O'Neill & Partners LP in New York. "That could create challenges for many banks."
[bingo - mish]
Bank of America Corp., Wells Fargo & Co. and U.S. Bancorp plan to report results on Tuesday, J.P. Morgan Chase & Co. and Wachovia Corp. on Wednesday, and Citigroup Inc. and SunTrust Banks Inc. on Thursday.
Washington Mutual Inc., the largest savings and loan -- and bigger than all but five other banks -- reports on Wednesday.
Although the Federal Reserve has increased short-term rates five times since June, with more hikes widely expected, long-term rates have changed little. This creates a "flattening" yield curve.
"A flatter yield curve probably hurts everybody in the banking industry," BB&T Chief Executive John Allison said on Friday, after his bank reported shrinking quarterly margins.
"For companies that rely on large securities portfolios, the flattening curve is a challenge, and I'm avoiding them," said Anton Schutz, who runs the $220 million Burnham Financial Services fund (BURKX.O: Quote, Profile, Research) .
On a more positive note, the improving economy means fewer bad loans, and banks may free up cash they set aside for them. This may burnish profit but reduce earnings quality in Wall Street's eyes because these "reserve releases" are one-time events.
[improving economy and fewer bad loans huh? I guess we will see about that]
Meanwhile, low borrowing costs, more mergers and an increase in stock offerings might help big investment banks such as Citigroup, J.P. Morgan and Bank of America. "I like the investment banks," Schutz said. "We are having capital formation, there are IPOs, and it's definitely going to be a big year in mergers."
[This will die with a corporate bond blowup - mish]
Cost-cutting may also be a theme. J.P. Morgan and Bank of America together are eliminating 29,000 jobs. Meanwhile, Wachovia has yet to detail a planned $1 billion of cost cuts.
[A mere 29,000 jobs to be eliminated huh? lovely - OOPS I see that does not count Wachovia - mish] |
