All Eyes On US Banks To Post Robust Results

According to an FT article on CNBC, investors are expecting US financial groups to post robust Q1 earnings growth, despite the lackluster markets for equity trading and investment banking during the first three months of this year.

Analysts believe that bank profits will depend largely on debt underwriting and fixed income trading on account of a downturn in equity issuance, takeover activity and volatility. The article quotes a research note by Brad Hintz of Bernstein Research as saying, “Evidence of cyclical headwinds on investment banking and equity sales and trading revenues in March tempered earnings expectations ... and once again set the stage for a focus on FICC [fixed income, currencies and commodities] as the wild card for earnings growth in the quarter.”

Commercial banks are likely to continue to “benefit from the spread between the ultra-low short-term interest rates at which they borrow and the higher rates they charge for loans.” The reporting season will commence on Wednesday with the declaration of results by JPMorgan Chase (NYSE: JPM).

For the first time since the beginning of the subprime crisis, analysts are predicting that as the economy recovers, lenders may stop keeping some funds as reserves to protect themselves from future loan losses. This would boost earnings. Investors are expecting most large US banks to announce y/y profit growth. Analysts expect Goldman Sachs (NYSE: GS) to report net income of $2.3 billion for 1Q, representing a 43% y/y increase, according to Thomson Reuters.

The FT article goes on to mention that according to market watchers, bid-offer spreads, which are the margins made by banks when they execute trades, have been shrinking from the highs witnessed last year, although the impact of this was partially offset by robust volumes.

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