Wall St Week Ahead-RPT-Major Banks to Release First Quarter Results with Lower Expectations

    (Repetition of the item originally transmitted on Friday, April 5)
By Stephen Culp
NEW YORK, April 7 (Reuters) - Investors will focus on
lower profits, a more conciliatory Federal Reserve and less
interest rate as major US banks launch what badysts expect
be the first quarter of corporate earnings contraction since
2016
Friday, April 12, JPMorgan Chase & Co and Wells
Fargo & Co will show results to start revenue
serious season. Citigroup Inc. and Goldman Sachs Group
Inc will report on the following Monday, followed by the Bank of
America Corp and Morgan Stanley on Tuesday.
Following the cautious shift of the Federal Reserve due to
signs of weakness in the US economy and the subsequent decline in
10-year Treasury yields, S & P 500 banks are in the process of publishing
first-quarter earnings growth of 2.3% YoY
8.2% expected six months ago, according to Refinitiv data.
(For an interactive chart on the evolution of banks' incomes
estimates: tmsnrt.rs/2HOVt1D)
"The Fed has rotated so abruptly, giving a pause about
what they say about the economy, "said Chuck Carlson,
Managing Director at Horizon Investment Services in
Hammond, Indiana. "The decline in interest rates is not good
news on bank interest margins. It's no wonder that
badysts make profit estimates. "
The tilt of the central bank has slowed down what had been
has been a trend of quarterly rate increases, among the signs of slowdown
economic growth.
The slowdown also affected 10-year Treasury yields. the
Reference bond yield hit its lowest level in 15 months in the first quarter
, flattening of the yield curve and reduction of the gap
interests banks pay the depositors and the interest they
to charge consumers, which is bad news for profits.
"It's for this reason that estimates are down," added Carlson.
"(Analysts are scared) interest margins for banks and
there is an underlying concern about loan growth. "
In the first three months of the year, the S & P 500
rebound after a sale in December, gaining 13.1%, its
largest quarterly increase since 2009. But financial data
underperforming the overall market, gaining 7.9% during the quarter,
the new low rate normality that has stimulated other sectors has been
a headwind for the banks.
Since October, badysts have significantly reduced their
forecast for the S & P 500 earnings in 2019, with a first quarter
estimates go from a growth of 8.1% to a decline from one year to the next
2.2%. This would mark the first quarter of negative growth
since the "recession" of profits that ended in 2016.
The partial closure of the federal government in January and a
The expected decline in trading revenue has provided an additional boost
badysts to reduce estimates of bank profits in the first quarter.
In a KBW memo dated April 3, Chief Analyst Brian Kleinhanzl
sees annual median earnings of stocks and fixed securities
revenues, currencies and commodities (FICC) to have
decreased by 15% during the quarter.
"In financial services, the hardest hit industry is
capital markets, "said Tajinder Dhillon, Senior Research Analyst
at Refinitiv in London. "These downward revisions have
intensified in the last 90 days. Among the 6 big banks, Goldman
Sachs, Morgan Stanley and JPMorgan have seen the biggest
decline "in the first quarter earnings estimates.
But some badysts believe that the effects on banks of a more
The accommodating Fed and the flat yield curve are overestimated.
Oppenheimer Senior Analyst Chris Kotowski wrote on March 25
note "to be sure, the rates and yield curve had an effect
on the banks' income. "But he called the impact of the Fed
decision "a minor", and wrote that apart from these impacts,
"The fundamentals of banks are remarkably stable."
Recent history shows that major US financial institutions
beat badysts' estimates at a higher rate than the broadest
market. In the last eight quarters, the six banks have
beat the revenue estimates 83.3% of the time on average, compared to
with an average hit rate of 75.4% for the S & P 500. In addition, the bank
Revenue surprised up 79.2% of the time, while S & P
The revenues of 500 companies exceeded badysts' estimates, 68.3% of
time, by Refinitiv data.

In the current reality of the end of the cycle, however, it is not clear that
banks can beat even lowered expectations. In any case they should
setting the tone for what badysts predict will be a rocky profit
period.
"Psychologically, these are leading companies that tend to
to drive the sentiment, "added Dhillon, suggesting that their
quarterly reports are indirect indicators of corporate results
health. "Banks are up there."


(Stephen Culp report, edited by Alden Bentley and Dan
Grebler)