SNL Financial Report: Q4'13 Earnings Subdued, but Street Eyes Brighter Outlooks for '14

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Wall Street's fourth-quarter 2013 earnings expectations for large U.S. banks are modest, but some analysts anticipate bankers will provide optimistic views on the year ahead.

Q4/13 earnings, banks, snl financial

Estimated Q4'13 income statements for the largest US banks and thrifts, part 1

It once again seems to be surprisingly weak. Despite a global bull market in equities that has taken the S&P up more than 60% in the past two years, investment bank trading profits seem likely to be down on a year-over-year basis again this quarter.

Just released today, SNL Financial's Q4 2013 bank earnings report finds Wall Street's fourth-quarter 2013 earnings expectations for large U.S. banks are modest, with undercurrents of restrained loan growth, subdued mortgage income, lingering margin pressure, high regulatory compliance and legal costs, and, in the case of firms with major investment banking operations, soft capital markets revenue.

"There are a lot of issues still to clear up," Sam Pappas, president and CEO of Mystic Asset Management Inc., told SNL.

An SNL analysis of average estimates for 19 major U.S. banking companies shows that analysts, on average, anticipate that 15 of them will report fourth-quarter 2013 net income that is down from the previous quarter. A majority of them are expected to report lower revenue, as well.

Big-bank earnings season kicks off Jan. 14 with results from JPMorgan Chase & Co. and Wells Fargo & Co. Bank of America Corp. follows the next day, with Citigroup Inc. and PNC Financial Services Group Inc. slated to report Jan. 16.

Evercore Partners analyst John Pancari, in a note projecting "sluggish" earnings, said the fourth quarter was marked by flat net interest income and loan growth that was typically only in the single digits. And while net interest margin pressure, a thorn in the side of banks for years, began to ease in 2013 as long-term rates rose, NIM compression persists for many. Short-term rates remain historically low and competition is fierce; as such, new loans are often coming on at lower yields.

Meanwhile, a rise in the 10-year Treasury yield that pushed up long-term rates at points last year made 30-year mortgages less affordable. Not surprisingly, demand for mortgage refinances waned, cutting into banks' income on that front, analysts say.

For larger banks, the paltry capital markets conditions that many experienced in the third quarter of last year likely dragged into the fourth quarter, Oppenheimer & Co. analysts said in a report.

It "once again seems to be surprisingly weak," they wrote. "Despite a global bull market in equities that has taken the S&P up more than 60% in the past two years, investment bank trading profits seem likely to be down on a year-over-year basis again this quarter."

Such banks are finding little relief elsewhere, with regulatory hurdles increasing — most recently with the so-called Volcker rule, which, among other steps, restricts proprietary trading. "That creates uncertainty" for investors in that it is not clear how such banks will replace revenue the rule effectively forces them to forgo, Pappas said. "And the uncertainty hurts."

For the full report, visit http://www.snl.com/InteractiveX/Article.aspx?cdid=A-26491411-14124

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Christina Twomey
SNL Financial
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