(Bloomberg News) JPMorgan Chase & Co. and Citigroup Inc., which report earnings this week, are under pressure to show that banks can increase revenue as the U.S. economic recovery sputters.
JPMorgan, which kicks off earnings season tomorrow, may say second-quarter revenue declined 0.8 percent to $24.9 billion, according to the average estimates of analysts surveyed by Bloomberg. Revenue at Citigroup, which reports results a day later, may fall 10 percent to $19.9 billion, with more than half of the decline tied to assets the company has tagged for sale.
"The street is going to be looking at revenue growth" that will be difficult for banks to produce in the current economic environment, Paul Miller, an analyst with FBR Capital Markets, said in a phone interview. "You need the economy to work, you need rates to go higher and you need to see continued improvement in credit."
Boosting profit won't be enough to impress investors, according to analysts including Miller, a former examiner at the Federal Reserve Bank of Philadelphia. They already know that fewer borrowers are defaulting, allowing banks to bolster profit with funds that had been set aside for future loan losses.
JPMorgan, led by CEO Jamie Dimon, 55, may say second-quarter profit climbed 6.2 percent from a year earlier to $5.09 billion according to the average estimate of analysts surveyed by Bloomberg. Citigroup may say profit rose 14 percent from the same period last year to $3.07 billion.
The sovereign debt crisis in Europe and slowing economic growth in the U.S. depressed trading volume and curtailed revenue in the second quarter as investors bought and sold fewer bonds and equities, according to analysts including Chris Kotowski at Oppenheimer & Co. in New York.
U.S. central bankers said last month that the economy will expand 2.7 percent to 2.9 percent this year, down from forecasts ranging from 3.1 percent to 3.3 percent in April. The revised outlook was the second time this year that Federal Reserve officials lowered their forecasts for growth.
Home prices have fallen since mid-2010 and will continue to suppress bank revenues and earnings for the foreseeable future, analysts said. A further decline in property values of 10 percent to 25 percent over the next five years "wouldn't surprise me at all," Robert Shiller, who helped create the S&P/Case-Shiller Index of property values, said last month.
"If you're a short-term investor, banks are going to struggle, probably for the next six to 12 months," said Michael Yoshikami, chief executive officer and founder of YCMNet Advisors in Walnut Creek, California, which manages about $1.1 billion, including Citigroup shares. "When you have slow economic growth and you have more stringent credit requirements, they're just making less loans."