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Why a few banks are really sweating going into earnings season

Why a few banks are really sweating going into earnings season
Finance2 min read


REUTERS/Eric Gaillard

Drop of sweat falls from tennis player Rafael Nadal.

Earnings season is right around the corner for most of Wall Street.

For many Wall Street firms, 2015 became the first year in a long time that big banks finally started to outpace global market indices.

But that could change in a heartbeat, and there is reason to believe that it will.

Earlier this month, US banks didn't get the good news that would have been a short-term boost. If the Federal Reserve opted to increase the interest rate, banks' lending businesses would inevitably become more profitable.

Bankers and analysts have other worries too. International market troubles could impact US banks and some fear FX headwinds may return. The breakup of the Comcast-Time Warner deal also proved painful for banks like JP Morgan and the quiet IPO pipeline hurt a few firms.

Business Insider spoke to a number of bankers and analysts. Here's what they had to say:

  • There are still headwinds the big banks banks may have to outmaneuver. The ongoing fight between Greece and its creditors might have a disproportionate impact on US markets, said Eric Oja, US banks equity analyst with S&P Capital IQ. Oja said he's also monitoring the Chinese stock market tumble and that it has the potential to hurt US banks.
  • One thing Oja said he isn't concerned with is currency headwinds impacting individual banks. "Currency volatility is down a little compared to where it was August through October last year," he said.
  • Lower trading revenue at banks. "I'm looking for lower trading revenue at a lot of the banks," one source said. "Liquidity seems to be drying up."
  • "Everyone expecting the banks to do buybacks," the source said. Banks' buybacks are subject to more restrictions post-crisis, and the time is now to repurchase shares.
  • "It's going to be yet another unremarkable quarter," a second source predicted. "Trading is going to be down, like it was last quarter."
  • That could change in future earnings reports. Goldman Sachs issued a bullish call for more M&A yesterday and a frothy deal market would help it and other firms with a big presence in I-banking.
  • "The only growth taking place now is at small banks," under $10 billion in market capitalization. The source said that smaller banks could be in for a big boost in business if rates remain low and they can cash in on a sustained rise in homes sales.

All this said, mediocre is better than getting crushed. And at this point, banks should be used to the former as much as they fear the latter.

Have fun guys.

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