Earnings in Q1 -2011 for the 14 big banks* exceeded analysts' consensus estimates. Baring three banks the big banks reported analysts' entire consensus beating EPS. Alas, it seems good times are not going to last long.
Investment banking revenue seen lower
Warnings shots were fired by the European big banks. In the second week of June, UBS Chief Financial Officer John Cryan told analysts, "UBS faces weaker second quarter earnings after capital markets turbulence led to a sharp slowdown at its investment bank and lower activity by rich clients". The problem was not Europe specific, as analysts started to announce downward revisions to the Q2-2011 earnings estimates for the US big banks. Take the case of Bank of America Corporation (NYSE:BAC), the consensus EPS* forecast has decreased over the past week from $0.280 to -$0.820 (-392.86%) and decreased over the past month from $0.280 to -$0.820 (-392.86%). Of the 12 analysts making quarterly forecasts, all 12 lowered their forecast. For Citigroup Inc. (NYSE:C), the consensus EPS* forecast has decreased over the past week from $0.990 to $0.980 (-1.01%) and decreased over the past month from $1.030 to $0.980 (-4.85%). Of the 12 analysts making quarterly forecasts, two raised and 10 lowered their forecast.
Many of the big banks are likely to have seen lower trading volumes, and so their revenue from investment banking is most likely under pressure. An indication of this sort has come from Ernst & Young's and Nomura's reports. U.S. cash equity volumes fell 10 percent quarter-on-quarter and 30 percent year-on-year. Overall, I believe the second quarter results for the big banks will come in lower due to concerns about the U.S. economy and the sovereign debt crisis, which have affected both equity and bond markets.
Retail banking has its share of bad luck
Retail banking momentum wasn't encouraging either. Pessimism deepened, according to the consumer confidence index. The index was at 60.8 in May, a more than five point loss from April and a six-month low. Headline retail sales slipped in May, tugged down largely by auto sales and with other components mixed. Overall retail sales in May dipped 0.2 percent, following a revised 0.3 percent gain in April (originally up 0.5 percent). Auto sales fell in May. The decline in auto sales during May to an annual rate of 11.79 million units from 13.17 million units during April suggests a likely slow pace of consumer spending in the second quarter. Expect consumer spending below the 2.2 percent annualized gain seen in the first quarter of 2011. Data on consumer sentiment for the first two weeks of June were clearly negative.