Tags: bank | earnings | Bove | growth

Dick Bove: Q2 Bank Earnings 'Should Be Sloppy'

Wednesday, 10 Jul 2013 10:31 AM

By John Morgan

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Banks may be the victims of their own past success this earnings season, in part because it's tough to come up with 15 straight quarters of year-over-year earnings, according to banking analyst Dick Bove.

Bove, vice president of equity research at Rafferty Capital, made that observation to CNBC as the major banks that are his bread and butter, such as JPMorgan Chase and Wells Fargo, get ready to release their results later this week.

"This should be a sloppy quarter. The reason is pretty simple: banks do pretty much what the economy does," Bove explained.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

The government recently downgraded its estimate of first quarter growth to an uninspiring 1.8 percent, and Bove said early indications of second quarter growth are also weak.

"We did not have a great second quarter from an economic standpoint. So we're not going to have a great second quarter in terms of bank earnings," he noted.

"Loan volume in the two big areas, commercial industrial and residential mortgage, have slowed down dramatically. Price competition has picked up to push margins lower."

Bove told CNBC the increase in long-term interest rates could put pressure on bank capital and that financial trading activity by banks during the quarter also was weak.

Big bank results, which commence Friday, could set the tone for the entire earnings season, according to MarketWatch.

Financial firms are a bellwether because the sector's stock performance is correlated to the overall performance of the market, said Adam Sarhan, chief executive of Sarhan Capital.

"It's not just the numbers, but how the market reacts to the numbers," he told MarketWatch. "Reaction to the earnings is a subtle but yet a very important signal for how the market will react to the rest of earnings season."

Betsy Graseck, a Morgan Stanley analyst, predicted in a recent report that Bank of America, Capital One Financial and JPMorgan will beat consensus estimates, while Bank of New York Mellon, Citigroup and Goldman Sachs are likely to miss estimates.

"On balance, we expect we could see some credit-driven beats from the large-cap banks, most of whom are still under-earning on the drag from elevated mortgage/home equity losses and expenses," John McDonald, an analyst at Bernstein, wrote in a note to clients, MarketWatch reported.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

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