By ED WELSCH
NEW YORK -- Banks should show solid second-quarter results as they begin to report next week, analysts said Friday, as capital raising and a pickup in deposits and mortgage activity allow them to cushion the blow from rising loan weakness tied to rising unemployment.
Strong mortgage revenue, increasing deposits and a recovery of unrealized losses on some securities portfolios due to an improvement in credit spreads will be positive for banks, Bernstein Research analyst John McDonald wrote in a note to clients.
"However, the industry is still up against several fundamental economic headwinds (i.e., rising unemployment, negative GDP), which could potentially push out the time frame for when banks move closer to normalized profitability," he wrote.
FBR Capital Markets analyst Paul Miller told clients Friday that he expects banks to have record levels of nonperforming assets and charge-offs for the second quarter. The market may overlook this, he added, as the banks use their capital raising and other one-time benefits to build their cushion of reserves held against future losses.
"However, if the job picture does not improve over the next couple of months, we believe credit costs will continue to rise at an alarming rate, pressuring bank [return on equity] and valuations," Mr. Miller said.
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*I expect GS to have record numbers due to the chatter of their record bonus'. However, I believe that a rally on this will be short lived. No jobs = no recovery for any of these banks over a longer term. And the new long term is three months.
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