Even while the newly created banking committee has been searching for answers concerning the credit and banking crisis, and pressure grows to separate retail and investment banking, the investment banking sector has been getting clobbered, and fourth-quarter results from Bank of America (NYSE:BAC), Citigroup (NYSE:C), JPMorgan (NYSE:JPM) and Goldman Sachs (NYSE:GS) look to be a disaster when reports come out soon for the financial companies.
Analysts at Morgan Stanley (NYSE:MS) stated investment banking earnings at this companies could plunge anywhere from 22% and 41% in the sector, which includes revenue generated from trading commodities, fixed income and currencies. The one possible bright spot in general could be commodities, but as a whole the overall group will suffer greatly in fourth-quarter earnings.
The first of the earnings reports from the gigantic financial firms comes on Friday, when J.P. Morgan gives their fourth-quarter results. J.P. Morgan itself has estimated fixed income revenues for the fourth quarter to fall on average across the large financial companies by 27 percent.
Revenues from equities haven’t received a good estimate for the fourth-quarter at these companies either, with an average loss of about 11 percent in earnings being projected for them.
Volatility in the markets in the early part of 2009 was the major reason the banks performed so well during that period of time. Now that the volatility has been cut back on significantly, the spreads are much lower than they were, the major reasons profits are falling.
For 2010, the outlook doesn’t look much better for the banks, although the commodity sector should help investment banking divisions profit there. On the other hand, trading in fixed income and currencies doesn’t look to be as profitable this year.
With consumer confidence decreasing and a so-called jobless recovery part of the economic picture, it’s hard to see bank stocks performing too well in 2010.
Some of them also face ARM defaults in in the first part of the year because of legally being required to do so, as well as commercial banking defaults in the second half of the year. You really can’t find much to cheer about in the sector going forward, even though some are trying to search through the rubble to find something to make things look better.
