It’s earnings season on Wall Street — brace for a rough one

Earnings season is about to kick off for Wall Street banks — starting with JPMorgan on Wednesday morning — and it’s likely to be ugly.

The first quarter is typically the strongest for investment banks, but choppy trading conditions in early 2016, fears over China’s growth, and a collapsed oil price are thought to have created a “perfect storm” for banks this year.

Investment banking revenue is down 36% across the Street, according to preliminary Q1 data from Dealogic — its lowest level since 2009.

Morgan Stanley’s head of trading, Citigroup’s CFO, and the CEO of JPMorgan’s investment bank have all issued warnings.

Barclays’ Jason Goldberg more recently summed up the troubles facing the Street. Those are:

  • “A tough capital markets backdrop (both trading revenues and investment banking fees are slated to produce their worst 1Q results since 2009)”
  • “Increased pressure to build loan loss reserves (reduced energy prices for much of the quarter, changes in the Shared National Credit exam grading methodology drives criticized loans higher)”
  • “A not as favorable interest rate backdrop (10yr -50bps, 2s/10s -20bps during 1Q mitigating Dec. Fed hike benefit)”

Goldberg’s team reduced first quarter earnings estimates for the vast majority of the banks they cover, particularly the market sensitive and energy-related firms.

That said, he expects to see continued loan growth above historical averages, good asset quality (except for energy), controlled expenses, tangible book growth, and more active share repurchasing.

JPMorgan is set to report at 6:45 a.m. Wednesday, followed by Bank of America and Wells Fargo Thursday, Citigroup Friday, Morgan Stanley Monday, and Goldman Sachs next Tuesday.

We’ll be back with full coverage.

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