Are Bank Earnings Expectations Too Low?

Credit Suisse on Tuesday issued a 4Q15 Earnings preview on the financial services industry. Susan Roth Katzke, Jill Shea and other analysts believe that expectations for the earnings results remain low and that the benefits of the recent interest rate hike won't be seen until 1Q15.

Credit Suisse highlighted multiple banks they believe will report significantly lower earnings than Wall Street estimates due to one time charges, which include Morgan Stanley MS, Bank of America Corp BAC, Goldman Sachs Group Inc GS and Citigroup Inc C.

Credit Suisse analysts wrote that expectations remain low due to "the challenge of low interest rates and capital markets weakness, additional loan loss reserve build, and myriad fourth quarter cleanup actions….reported results are further, generally negatively impacted by one-time charges."

One of the biggest focuses for Credit Suisse heading into earnings season for financial institutions is a combination of operating efficiency and revenue growth. Furthermore while regulation continues to be a profitability challenge for the banks, credit quality is very important for Credit Suisse as well, particularly reserves for losses on loans.

Overall, while the financial services industry may face challenges in the current quarter, Credit Suisse sees increased strength in the future due to increasing interest rates and a possibility of greater operating efficiency for the major U.S. banks.