Tags: banks | earnings | trading | revenue

WSJ: Big Banks Aren't Out of the Woods Yet

By    |   Monday, 20 October 2014 02:47 PM

While big banks scored nice earnings gains during the third quarter, they still face quite a few bumps in the road.

The likely continuation of low interest rates will make profits difficult to come by on lending, The Wall Street Journal reports. And though banks garnered formidable profits from their financial-market trading last quarter, market volatility could weigh down future performance.

"While the revenue environment got a little bit better this quarter I don't think anyone is declaring victory, especially given the sudden pick up in volatility and the fall-off in interest rates," Barclays analyst Jason Goldberg tells The Journal. "We are not out of the woods yet."

Banks also face rising legal and regulatory expenses.

“Regulatory and compliance costs will forever be much higher than they were prior to the crisis,” says RBC analyst Gerard Cassidy, adding that the rate of increase is declining and ultimately will lead to lower costs later.

All this probably means cost cutting will remain at the top of banks' agendas. Lower expenses "are a core part of the way we continue to drive returns," Morgan Stanley CFO Ruth Porat tells the paper.

The KBW Bank stock Index has slid 1.6 percent so far this year, compared with a 4.1 percent return for the S&P 500.

Some analysts say that small banks now represent more attractive investments than large banks do.

"Big banks are saddled with regulatory baggage. They're still paying huge fines," Nicholas Galluccio, president of Teton Advisors, tells CNBC. "But regional and community banks are the catalyst for mergers and acquisitions, which is going to pick up dramatically in the next few years."

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While big banks scored nice earnings gains during the third quarter, they still face quite a few bumps in the road.
banks, earnings, trading, revenue
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2014-47-20
Monday, 20 October 2014 02:47 PM
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