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Deutsche Bank Analyst Sees Lower Q2 Profits At Major Banks

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Major banking companies are likely to post lower profits in the upcoming quarter according to a Deutsche Bank analyst, continuing a theme that's dogged the industry for much of the past year.

Although big bank stocks are up four percent in the year-to-date, earnings are stalled following last year's stellar 35 percent growth rate.

Best bets in the sector right now according to Deutsche Bank's Rob O'Connor: Bank of America (NYSE: BAC) Goldman Sachs (NYSE: GS) and JPMorgan Chase & Co. (NYSE: JPM).

Among super-regional banks, O'Connor singled out for investment Fifth Third Bancorp (NASDAQ: FITB) and M&T Bank Corp. (NYSE: MTB)

O'Connor expects second-quarter profits on average for the group will fall five percent to 10 percent from a year earlier, and flat versus the first quarter. Earnings year-to-date have been held back in part by a slowing pace of bond purchases by the Federal Reserve, which pump cash into the economy. O'Connor said the so-called tapering has particularly hurt fixed income trading, which he thinks will again miss the Wall Street second-quarter consensus.

Meanwhile, the regional banks have been hit by higher-than-expected credit costs and slowing loan growth.

O'Connor expects full-year earnings growth for large-cap banks of just three percent. By 2015, that rate should pick up to nine percent, increasing to 13 percent by 2017.

"However, that growth is dependent on a much stronger economy and higher interest rates," O'Connor said in the note, in which he assumes economic growth of five percent by 2017.

Posted-In: Deutsche Bank Rob O'ConnorAnalyst Color Analyst Ratings

 

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