Amid
President Obama’s scrutiny on the nation’s big banks to reduce excessive risk
in trading, and other risky financial assets, US banks are prepared to inform
investors on their quarterly earnings.
The nation’s
big banks are about to inform investors that quarterly revenue has declined
5.6% from the previous year. The financial services sector in the US has been
hit hard, and traditional business sectors such as trading, lending, foreign
exchange and fixed income have taking a dive.
Once the
leader in volume of business for banking, trading has taken a dive due the
continued scrutiny to reduce excessive risk. The poor economic condition which has affected
lending, together with mounting legal expenses from investigations and
settlements to avoid lawsuits, has affected earnings.
Citigroup
will announce a drop in earnings by 5.6% as are other big banks like Bank of
America, JP Morgan Chase, Goldman Sachs, Morgan Stanley and Wells Fargo.
Citigroup will announce a settlement of $7 billion in fine from the sale of its
risky mortgages that led to the housing crisis of 2008. Citigroup will announce
an Earnings per Share (EPS) of $1.06 vs $1.25 in the same quarter last year.
Shares of Citigroup have declined 10% year to date.
EPS is the
portion of a company’s profit allocated to each outstanding share of a company’s
common stock. A note worth noting is that EPS is not enough to make an informed
investment decision. The reason being is that one can have two companies, one
reporting a high EPS but low earnings, and the other low EPS and higher
profits.
The US Justice
Department has also reached a settlement with JP Morgan Chase and is in
discussions with Bank of America.
