Analyst Sees Lower Q2 Profits At Biggest Banks

Major banking companies are likely to post lower profits in the upcoming quarter according to an analyst, continuing a theme that's dogged the industry for much of the past year. Although big bank stocks are up 4 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 Corp.,

Goldman Sachs Group Inc.

and JPMorgan Chase & Co.

. Among super-regional banks, O'Connor singled out for investment Fifth Third Bancorp

and M&T Bank Corp.

O'Connor expects second-quarter profits on average for the group will fall 5 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 3 percent. By 2015, that rate should pick up to 9 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 a note in which he assumes economic growth of 5 percent by 2017.