RPT-PREVIEW-Credit outlook a focus when big banks post results

(Repeats story sent July 7, with link to Reuters Insider
video.)

* Bank of America, JPMorgan, Citigroup report next week

* Investors wary that recent credit improvement may worsen

By Elinor Comlay

NEW YORK, July 7 (BestGrowthStock) – When Bank of America Corp
(BAC.N: ), JPMorgan Chase & Co (JPM.N, and Citigroup Inc

“Investors are very sensitive to a possible deterioration
in credit, after what happened in 2008, 2009,” said Marshall
Front, chairman of investment firm Front Barnett Associates in
Chicago.

The broad KBW Banks Index slumped 11 percent during the
second quarter of 2010 as investors grew worried that banks’
recent recovery could be jeopardized by high U.S. unemployment
and a second dip in housing prices.

With share prices already baking in worries about the costs
of new U.S. financial regulations and poor trading results,
there is room for shares to jump after the earnings reports.

But if bank executives instead warn that loan demand
remains weak, or they are cautious about the credit outlook in
the second half of the year, or they say dividend payouts now
look more likely next year than this year, shares may slump —
even if the banks report lower loan losses, analysts said.

Bank executives’ comments on calls with analysts could be
crucial in setting the tone, said Anthony Polini, analyst at
Raymond James. The executives could spook investors further or
could help shares bounce back with positive comments about
credit line utilization picking up, for example, he said.

TRADING LOSSES

Second-quarter earnings could be as much as 6 percent below
the average Wall Street forecasts for some banks, according to
some of the most accurate analysts as assessed by Thomson
Reuters StarMine’s SmartEstimates.

Bank of America, the largest U.S. bank by assets, and
Citigroup, the third-largest, are expected to report lower
second-quarter earnings, according to Thomson Reuters I/B/E/S.

Analysts on average expect Charlotte, North Carolina-based
Bank of America to report a profit of 20 cents a share, below
the 33 cents it posted in the year-earlier quarter.

Analysts expect New York-based Citigroup to earn 5 cents a
share, down from 49 cents in the year-earlier quarter.

Analysts in the last week have already lowered their
expectations for JPMorgan, the second-largest U.S. bank by
assets, but it is still expected to do better than a year
earlier with earnings of 72 cents a share, up from 28 cents a
share.

San Francisco-based Wells Fargo & Co (WFC.N: ) — despite
having a much smaller investment bank and less exposure to the
volatile stock markets and widening European credit spreads
than its larger rivals — is also expected to report lower
second-quarter results.

The fourth-largest U.S. bank by assets is expected to
report earnings of 49 cents a share, below the 57 cents a share
in the year-earlier quarter, according to Thomson Reuters
I/B/E/S.

For more details on estimates for these banks and their
peers, see http://link.reuters.com/kax36m

ROCKY TRADING QUARTER

A rocky quarter for trading and securities underwriting is
expected to dampen results at Bank of America, JPMorgan and
Citigroup. Investment banking revenues in recent quarters have
made up for losses on consumer businesses at the three banks.

On top of lower investment banking revenues, the largest
banks will be paying a payroll tax related to bonuses awarded
to British employees. Citi has said this will cost it $400
million in the quarter, while Bank of America said its cost
will be $465 million. JPMorgan has not given a cost.

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Reuters Insider video on JPMorgan Chase’s upcoming
second-quarter results

http://link.reuters.com/xuz36m
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The financial regulation bill before the U.S. Congress
looks set to increase compliance costs and curtail some of the
banks’ most lucrative businesses, while a homebuyers’ tax
credit that spurred mortgage origination in recent quarters has
ended.

Even as investors worry about the outlook for banks’ loan
portfolios, analysts expect banks broadly to put less money
aside against future losses in the second quarter. That alone
may boost earnings compared with previous quarters.

Some banks that have already set aside ample funds to cover
loan losses, such as JPMorgan, may release some of those funds.
Polini, of Raymond James, said JPMorgan could release as much
as it did in the first quarter, about $900 million.

Banks without investment bank units — such as US Bancorp
(USB.N: ) and PNC Financial Services Group (PNC.N: ) — could do
well, analysts said, because, like Wells Fargo, they had less
exposure to the markets.

But even with their fears about U.S. banks, investors are
even more pessimistic about many European banks, which have
suffered in the wake of the Greek debt crisis. European bank
supervisors listed some of their criteria for stress tests for
91 banks on Wednesday, as regulators work to restore faith in
the European Union’s banking system. [ID:nLDE6661JE]
(Reporting by Elinor Comlay; Editing by Gary Hill)

RPT-PREVIEW-Credit outlook a focus when big banks post results