RBC Capital Markets analyst, Gerard Cassidy, says that banks with big capital markets are most likely to experience troubles in their financial performance every fourth quarter. However, if it were to be based on the year-on-year performance, the entire industry will enjoy impressive earnings that will be brought about by good credit quality. Moreover, Cassidy reiterated that the current trend in the industry will have the most advantage on banks that are still recovering.
Earnings by major banks
Financial analysts are closely watching major banks and home loan providers in order to determine how the present state of residential mortgages will affect the industry. This is following the new projection that the entire industry will experience a downfall after the excellent performance in 2012. The decline is expected to be at six percent from the last quarter as reported by the Mortgage Bankers Association.
A major provider of residential mortgages, JPMorgan, is one of the banks that must be closely monitored. A prominent firm conducted a research on major banks and found out the JPMorgan has the highest revenues earned from trading and investment banking, totaling about 30 percent of its overall income.
Revenue-wise, it is followed by the Citigroup, Bank of America and Wells Fargo with 20 percent, 25 percent and five percent, respectively.
Meanwhile, Thomson Reuters released a report that banks have collected significantly lower fees on advisory services for investment banking in this year’s first quarter than the fourth quarter of last year. Overall fees were down by 11 percent from the fourth quarter of last year, although a six percent increase year per year has been recorded. In the first quarter of 2013, fees collected summed up to $19.8 billion.
JPMorgan gets better projection than other banks
Despite the sloppy and unpredictable capital market trends, analysts are still hopeful on JPMorgan. They noted that the core products would remain impressive with growth in loans and solid deposits along with the lowest net interest margin risk among the other competitor banks.
Furthermore, analysts predict that the bank will have $1.43 core earnings per share for the first quarter of 2013. This is relatively higher than the $1.38 Street consensus.
They also foresee stocks at JPMorgan being a lot cheaper than in others. Shares could be up by 17 percent for JPMorgan. Nevertheless, Bank of America may also enjoy an upside but only at the same level as Citigroup and Wells Fargo.
Banks to invest in
Although experts see plenty of upsides for major banks, they recommend investors to look at other options. They cited the recent downgrade of Goldman Sachs by the Bank of America to neutral. Similarly, Morgan Stanley was cut to the same level by the Credit Suisse. Both firms are seen to have limited upside, although their stocks are up in the past couple of months.
Nevertheless, banks like the Regions Financial, Sun Trust, Citigroup and Bank of America are set to improve their earnings in the next two years. Experts say that normalized earnings will be achieved a few years henceforth. They reiterated that stocks of safer banks, such as US Bancorp, will face difficulty. Unfortunately, it may be the reason that its shares won’t be doing well.