US banks had another forgettable year. The third quarter was their worst since the financial crisis. Now, it looks like the fourth quarter will be even more abysmal.
US banks have very little positive developments to point to. Fixed-income trading may fall 12% from the third quarter… equities may drop 10%… and investment-bank revenue will probably be unchanged.
But that was yesterday. There’s always tomorrow. In the words of Jefferies Group CEO Richard Handler, “2012 is a new year.” Jefferies reported yesterday that its trading revenue dropped about 31% from a year earlier.
If banks didn’t like the macro-environment of 2011, there’s little reason to believe they’re going to like 2012’s. Europe is still a mess. China is fighting a hard landing. Gold has plateaued. And commodity prices have been heading down.
On top of that banks will have to begin complying with escalating cash reserve ratios. From Bloomberg…
Dec. 20 (Bloomberg) — Brad Hintz, an analyst at Sanford C. Bernstein & Co., talks about the outlook for Jefferies Group Inc., the investment bank that’s been battling speculation about its financial strength after MF Global Holdings Ltd. collapsed. The company today said fourth-quarter earnings per share excluding some items was 17 cents, compared with the 14 cent average estimate of eight analysts surveyed by Bloomberg. Hintz speaks with Lisa Murphy and Scarlet Fu on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)
Some of Wall Street’s biggest firms signaled optimism in October after posting their worst trading and investment-banking period since the financial crisis. Now, analysts say the fourth quarter may have been worse.
Fixed-income trading revenue at U.S. banks may fall 12 percent from the third quarter, minus accounting adjustments, while equities drop 10 percent and investment-bank revenue will probably be unchanged, David Trone, an analyst at JMP Securities, wrote in a Dec. 16 report.
Some analysts had expected a rebound after the third quarter was the worst for trading and investment banking since 2008, when the collapse of real estate markets contributed to a worldwide credit crunch. Now many are looking ahead to 2012 after investors stayed on the sidelines amid concern that the European debt crisis would lead to a global slowdown.
“We’re in a difficult environment,” Brad Hintz, an analyst at Sanford C. Bernstein & Co., said yesterday on Bloomberg Television’s “In The Loop” program. “I really don’t think anyone’s going to be focusing on the earnings of these firms. They’re really going to be focusing forward.” Hintz is a former Morgan Stanley treasurer.
Twelve analysts cut earnings estimates (GS) for Goldman Sachs Group Inc. in the past four weeks and 14 trimmed theirs for JPMorgan Chase & Co. (JPM), according to data compiled by Bloomberg. Goldman Sachs, which gets the majority of its revenue from trading, may post its lowest annual net income after preferred dividends since 1998 and the least revenue since 2005, Roger Freeman, a Barclays Capital analyst, said in a note titled “Another Year to Forget.”
Trading revenue at the five biggest Wall Street banks — JPMorgan, Goldman Sachs, Bank of America Corp. (BAC), Citigroup Inc. and Morgan Stanley — may drop from a year earlier for the sixth time in seven quarters. Trading and investment-banking revenue fell 47 percent in the third quarter from the first three months, excluding accounting adjustments.
Richard Staite, an analyst at Atlantic Equities in London, said a weak fourth quarter and the sovereign debt crisis in Europe will “rapidly” turn market attention to the banks’ outlooks for next year.
“Goldman and Morgan Stanley (MS) will struggle to paint an upbeat picture of 2012,” Staite wrote in a note this month. “With no sign of a clear solution to the problems in Europe and a deteriorating economic backdrop, it will be hard for the pure investment banks to predict the timing of any upturn.”
Goldman Sachs Chief Executive Officer Lloyd C. Blankfein, 57, said last month that global growth will “snap back” faster than most forecasters expect. He said he didn’t know when that will happen.
As the banks trade down, they’re holding out hope for a better 2012. But right now macroeconomic trends are not their friends.
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