December 22, 2024

Banks Brace for Bad News as Earnings Season Arrives

But when it comes to the nation’s biggest banks, they have a lot more in common than you would think. Both are deeply frustrated with financial institutions in general and have little faith in the message coming from bank executives.

Earnings season is about to upset one of those groups even more. Never popular to begin with, the nation’s biggest banks are rapidly becoming a focus of public dissatisfaction with the economy, uniting opponents including consumers upset about new fees, protesters who blame the banks for the nation’s economic woes, and lately, Wall Street types who have dumped their bank shares en masse.

For banks, the situation is likely to get worse before it gets better. They are due to begin reporting earnings this week, and the numbers are likely to leave investors as frustrated as ever, making the banks even more desperate to impose new charges on consumers’ accounts and rack up bigger trading profits. Over all, revenue is expected to fall 4 percent in the third quarter, slipping back to 2005 levels, according to data from Trepp. The industry’s earnings are expected to be about what they were in late 2002.

The biggest banks are expected to be hit hard by a sharp slowdown in their Wall Street-related businesses because of the chaotic third quarter in the markets. But the growth prospects for traditional banking are not great either. Tough new federal regulations restricting overdraft charges and other penalties are already taking a big bite out of profits. And then there are the government-mandated cuts in once-lucrative debit-card swipe fees, which have prompted banks to try to recoup billions of dollars in lost revenue with increases like Bank of America’s controversial new $5 monthly debit card fee.

Besides leaving consumers infuriated, the debit card fees have also drawn the wrath of the White House, with President Obama warning last week that customers should not be “mistreated” in pursuit of profit, while Vice President Joseph R. Biden Jr. characterized moves to hit consumers with new charges “incredibly tone deaf.” Senator Richard J. Durbin of Illinois, the No. 2 Senate Democrat, took the unusual step of denouncing Bank of America on the Senate floor, urging customers to “vote with your feet, get the heck out of that bank.”

Investors certainly have. Bank stocks are at lows not seen since the wake of the financial crisis, and shares of Bank of America, the nation’s biggest bank, are down more than 50 percent since the start of the year, while Citigroup is down more than 40 percent.

David H. Ellison, a mutual fund manager for FBR who invests in financial companies, likens owning bank stocks these days to holding airline stocks in the months after the Sept. 11 attacks in 2001. “Nobody wants to own the group,” he said. “Everybody thinks it is not the place to be.”

And in a kind of unusual convergence, protesters and bank analysts alike have had it with bank management.

For the protesters, financial institutions, among other things, symbolize growing economic inequality in the United States, with bank executives enjoying huge pay packages even as their companies benefit from government support. Investors distrust them because they have disappointed the Street in quarter after quarter, and seem unable to grow.

“There is a huge skepticism, that goes way beyond normal healthy doubt, about how reliable their numbers and guidance are,” said Chris Kotowski, an analyst with Oppenheimer. “People who were bullish are frustrated and beaten down.”

Michael Mayo, a longtime financial services analyst, has been traveling around the world over the last year, calling attention to what he calls his “Japan lite” thesis — the view that the United States and its banks are in for a prolonged period of very slow growth, not unlike Japan’s so-called lost decade in the 1990s.

A year ago, he said, about four in five clients brushed off his investment thesis. Today, he said, most agree.

Article source: http://feeds.nytimes.com/click.phdo?i=1664a624e270368776ec18d28a6f1ed0

Bucks: Thursday Reading: Compare College Costs on a New Web Site

June 30

Thursday Reading: Compare College Costs on a New Web Site

A new federal Web site lets families compare college costs, Federal Reserve caps debit-card swipe fees, owning a home still retains its allure and other consumer-focused news from The New York Times.

Article source: http://feeds.nytimes.com/click.phdo?i=4b349c4e6615e5c5e90daf16603572fb