Friday, June 26, 2009

Bank Earnings Season - Just Around the Corner

Starting in a couple of weeks, banks start reporting 2nd quarter earnings. I believe JP Morgan starts it off July 16th. If you remember, this massive rally was started with Citigroup and Bank of America pre announcing they would make money last quarter. This lit a fire in financials and as a result the rest of the market. Of course, much of the earnings, i.e. Wells Fargo, were massive accounting games. Underreserving for losses and messing with mark to market accounting. This quarter sets up an interesting dynamic. So far the banks have kept their mouths shut. No chatter on what earnings will look like. That is until today, when UBS said they will have a loss the 2nd quarter and be back to the water trough needing to raise capital. From the UK Times

UBS, Switzerland’s biggest bank, has announced that it has undertaken a SwFr3.8 billion (£2.1 billion) capital raising as it warned investors it would make a net loss in the second quarter.


UBS is due to announce its second-quarter results on August 4.

Now UBS was one of the few banks to actually report a loss in Q1. This Q2 loss would be less than Q1. UBS has been sort of an outlier so not totally sure you can extrapolate anything from this pre announcement for the rest of the big banks.

You had a massive refi boom in the first half of the 2nd quarter that would be very profitable for U.S. banks but this was shut off about three weeks ago with the big spike in mortgage rates. Also, the big banks were able to take alot of the benefit from the reduction of mark to market accounting in Q1. The smaller banks would not have been able to do this because the software and lack of man power to change their accounting on such short notice for the most part would not have been there.

I have a feeling the bank earnings number may not be that bad which I think would be the last set of good earning numbers for several quarters. The question is how far the market will look out. Banks have had a massive run. There may be enough question marks that Q2 earnings doesn't act as the catalyst to send the banks higher.

No comments: