It’s earnings season on Wall Street — brace for a rough one

The boat in the storm
Henri Rousseau’s ‘The Boat in the Storm’ Wikimedia Commons

Earnings season is about to kick off for Wall Street banks, and it’s likely to be ugly.

A chorus including Morgan Stanley’s head of trading, Citigroup’s CFO, and the CEO of JPMorgan’s investment bank has already warned the first quarter will be unusually weak.

Macquarie’s David Konrad predicted in a note a couple of weeks ago that choppy trading conditions, fears over China’s growth, and a collapsed oil price have created a
“perfect storm”
for banks.

Barclays’ Jason Goldberg more recently summed up the troubles facing the Street. Those are:

  • “A tough capital markets backdrop (both trading revenues and investment banking fees are slated to produce their worst 1Q results since 2009)”
  • “Increased pressure to build loan loss reserves (reduced energy prices for much of the quarter, changes in the Shared National Credit exam grading methodology drives criticised loans higher)”
  • “A not as favourable interest rate backdrop (10yr -50bps, 2s/10s -20bps during 1Q mitigating Dec. Fed hike benefit)”

Goldberg’s team reduced first quarter earnings estimates for the vast majority of the banks they cover, particularly the market sensitive and energy-related firms.

That said, he expects to see continued loan growth above historical averages, good asset quality (except for energy), controlled expenses, tangible book growth, and more active share repurchasing.

JPMorgan will start things off on Wednesday, followed by Bank of America and Wells Fargo Thursday, Citigroup Friday, Morgan Stanley Monday, and Goldman Sachs next Tuesday.

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