Monday, April 11, 2011

Banks (BAC) (C) (WFC) (JPM) (GS) (MS) Profits will Disappoint

The party may be over for the giant banks and their shareholders in the years ahead, as regulations and continuing weakness in loans will weigh on the giants like Bank of America Corp (NYSE:BAC), JPMorgan Chase (NYSE:JPM), Wells Fargo & Co (NYSE:WFC), Citigroup (NYSE:C), Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS).

In the short term, Bank of America Corp, JPMorgan Chase, and Wells Fargo & Co are expected to exceed expectations, but not by much. With some of the less accurate analysts appearing to be far too optimistic concerning the banking sector, it will burst their bubbles and push share prices down. Bank of America is expected to beat estimates by the most, at about 7.7 percent above projections.

Citigroup, Goldman Sachs and Morgan Stanley are expected to underperform in the first quarter, with earnings disappointing. Morgan Stanley could miss by a whopping 22 percent, according to Starmine Smart Estimates.

As for shareholders and investors, it appears the industry as it is now, will never return to days of 20 percent return on shareholder equity. Some analysts even think the industry will struggle to reach 15 percent, and may settle at from 10 percent to 12 percent.

1 comment:

Mr. T said...

20% ROE is a number based on equity levels pre-financial crisis where a well-capitalized insitution required much less tier-one capital.

Post financial crisis and with those captial levels now closing in on, and even exceeding, a doubling of tier-one levels dictated by the Treasury/Fed, the ROE may mathmatically be lower.

But it doesn't mean a well-capitalized won't be a great investment; particularly when that excess capital can mean a higher dividend policy or common share buyback for shareholders