Today’s howler comes from the fundamental banking analyst community. Recall that this is the group who once existed to help investors decide where to place their monies. When that did not work out, their bosses morphed their business model towards generating IPO and syndicate business. When that failed, they moved towards driving short term institutional trading.

Today, I have no idea what their business model is.

Despite having missed 2011′s declining earnings per share for the biggest U.S. banks, they are forecasting an even bigger profit surge for 2012, according to Bloomberg:

“The six largest lenders, including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and Goldman Sachs Group Inc. (GS), may post an average profit increase of 57 percent this year, according to 184 analysts’ estimates compiled by Bloomberg. A year ago, analysts predicted profit at the banks would climb 32 percent in 2011. Instead, earnings per share probably fell 18 percent as the economic recovery analysts counted on never took hold.

Improved trading results, more investment-banking deals, expense-cutting measures and lower credit costs will lead to the increase in earnings that didn’t materialize last year, analysts say. That may provide a boost to stock prices after financials were the worst-performing industry in the U.S. in 2011.”

Exactly how does one forecast improved trading results? “I really feel these guys are not only going to have a better trading environment in 2012, but they are going to get better insight, cleaner executions and be a whole lot luckier than they were in 2011” said no one at all.

Its not just the Bank Analysts who stunk up the joint. Wall Street Market Strategists did not do much better, as this WSJ graphic shows:

The takeaway is you better have your own approach for investing and trading, rather than relying on 3rd party guesses . . .

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Sources:
Bank Earnings Jump 57% in Analyst Forecasts
Michael J. Moore and Dawn Kopecki
Bloomberg, Jan 3, 2012  
http://www.bloomberg.com/news/2012-01-04/bank-earnings-increase-57-in-analyst-forecasts-which-proved-wrong-in-2011.html

Street Wary on Its Random Walk
Strategists, on Average, See 6.1% Rise in S&P 500 for 2012 as Worries Abound on Europe, Earnings
STEVEN RUSSOLILLO
WSJ, JANUARY 4, 2012
http://online.wsj.com/article/SB10001424052970204368104577139023088982182.html

Category: Analysts, Earnings, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “Bank Earnings Forecast: +57%”

  1. “The takeaway is you better have your own approach for investing and trading, rather than relying on 3rd party guesses . . .”

    Whoa there, Cowboy~

    that there would be un-American! no?

    or, am I mistaken, and that is, just, another ‘Suspicious Activity’ that could put you in for ‘indefinite detention’? (thx NDAA~)
    ~~~

    “President Barack Obama signed the controversial National Defense Authorization Act (NDAA) into law earlier today in Hawaii.
    CNN reports Barack Obama “reluctantly signed a defense authorization bill, saying he was concerned about some in Congress who want to restrict options used by counterterrorism officials.”…”
    http://www.digitaljournal.com/article/317046

    “…However, innocent people are wrongly accused all the time. The Bill of Rights is there precisely because the founders wanted to set a very high bar for the government to overcome in order to deprive an individual of life or liberty. To lower that bar is to endanger everyone. When the bar is low enough to include political enemies, our descent into totalitarianism is virtually assured.

    The PATRIOT Act, as bad as its violation of the 4th Amendment was, was just one step down the slippery slope. The recently passed National Defense Authorization Act (NDAA) continues that slip toward tyranny and in fact accelerates it significantly. The main section of concern, Section 1021 of the NDAA Conference Report, does to the 5th Amendment what the PATRIOT Act does to the 4th. The 5th Amendment is about much more than the right to remain silent in the face of government questioning. It contains very basic and very critical stipulations about due process of law. The government cannot imprison a person for no reason and with no evidence presented or access to legal counsel….”
    http://original.antiwar.com/paul/2011/12/27/the-ndaa-repeals-more-rights/

  2. Nuggz says:

    But, but, but….ECRI…..Mish……Peter Schiff…..Ron Paul….gold……

    I think I need an whhhhambulance.

    More importantly, this is similar to politicians who defer to the electorate for guidance. It’s probably not a good idea to discuss economic policy with a bunch of choads who have a negative savings rate.

  3. dougc says:

    The best sttrategy for BAC last year would of been to short BAC. Free investment advise is worth what you paid for it.

  4. b_thunder says:

    It’s not how much they ‘really” earn, it’s how much their accounting allows them to claim that they’ve earned. For example, throughout 2011 because their own bonds traded lower, the banks were able to claim higher earnings. They will keep claiming higher and higher earnings until one day out of the blue they will follow Lehman into Chapter 11.

  5. Expat says:

    When I traded for majors and major banks, there would be an end of year review and budget forecast for the following year. Basically, it meant adding ten percent to the previous year’s revenue. Totally pointless, but it is what is taught in business school, so it must be clever.

    When I worked for a pure trading company, we had no budgets or forecasts, just the vig. Make your vig and collect twenty percent of what you made. Make twenty million one year? Okay, next year you need to make four million to pay for your coffee, desk and phone. Lose twenty million? If you’re not fired, then you need to make four million to pay for your coffee, desk, and phone.

  6. Pantmaker says:

    “I really feel these guys are not only going to have a better trading environment in 2012, but they are going to get better insight, cleaner executions and be a whole lot luckier than they were in 2011” said no one at all.

    LOLOL!! brilliant~

  7. VennData says:

    …and tax receipts will rise when you cut tax rates.

    …oh, people BELIEVE that one. It’s called Supply Side economics.

  8. rd says:

    Don’t many of the analysts work for companies that are in the community being evaluated?

    I doubt if they are in the habit of doing a circular firing squad with their own bosses and companies on the line.

    How can you stay employed if you keep writing analyses that effectively say that your boss and the other guys like him out there are psycophathic people who will game the system (possibly committing illegal acts in the process) to maximize their personal earnings while steering their corporate ship into the Titanic’s iceberg?

    Instead, I am sure that all of their bosses are kind geniuses looking out for the shareholders and society who just happened to have run into some bad luck over the past couple of years.

  9. dad29 says:

    Evidently the NYState “MBIA v. Countrywide” case was not on the radar of these ‘analysts.’

  10. DeDude says:

    Have they accounted for some of all those off balance sheet (mark to imagination) loses being realized or are they still expecting those things to be kicked down the road for another year?

  11. Steve Hamlin says:

    Optimistic view: at least their 2012 forecast is below their terrible 2011 forecast. Could they be gradually learning that a decade-long financial deleveraging in the developed world still going on?

  12. Sunny129 says:

    How any one can trust the balance sheets of these ‘zombie banks’ when the M to M accounting has been suspended? Does any one even KNOW the quantity and the quality of their assets and the liabilities?

    Talking about earnings without the about data is simply INSANE!

  13. Stan Klein says:

    Their new business model is screwing customers. For example, our (large, national) bank now has a $2 monthly fee for providing on our statement copies of non-electronic checks. The fee is likely very close to pure profit. However, they need the money because they are being sued and investigated all over for their part in the mortgage situation, are being fined and forced to buy back bad mortgages because they lied to everybody about them. Go overboard screwing mortgage customers and then screw banking customers to pay for the consequences when the mortgage situation blows up.

  14. Sechel says:

    I’m not sure how they count earnings, but the press is full of stories about anticipated explosions in leveraged loan and ABS issuance for ZIRP starved accounts. What is sad is that if this is true, accounts that would go into relatively safe fixed income investments may be taking on inappropriate risk for no other reason than the Fed holding a gun to their heads and saying, you can either lose in the long run, or take a shot and hope your hail mary investment pays off.

  15. [...] Can we really believe current earnings estimates for banks?  (MarketBeat, Big Picture) [...]

  16. louis says:

    Sweet, now can we please get back to some bubble creation?

  17. radicall says:

    DVA might get the banks there this year ;)

  18. [...] “Exactly how does one forecast improved trading results?” — Ritholtz [...]