Analysts expect quarterly earnings at the six largest banks will drop 20 percent, according to Thomson Reuters I/B/E/S data. Fred Katayama reports.
Get set for ugly results from American banks when they start reporting this week. Analysts expect quarterly earnings at the six largest banks will drop twenty percent, according to Thomson Reuters I/B/E/S data. That would be the worst start to the year since the 2007 financial crisis. The biggest challenge: fixed-income trading. Heavy capital requirements and restrictions on proprietary trading have made the business less profitable. Citigroup expects trading revenue to fall 15 percent. Another challenge: investment banking. JPMorgan Chase sees its banking business declining 25 percent. Banks are suffering from a drop in fees for mergers and acquisitions and underwriting. Goldman Sachs analyst Richard Ramsden said, "If you do have a significant decline in revenues, there is a limit to how much you can cut costs to keep things in equilibrium." Investors have soured on banks even though interest rates are expected to rise. The Financial Select Sector SPDR fund is down more than seven percent this year, vastly underperforming the S&P 500.