NEW YORK — If the nation’s major banks report big third-quarter profits, don’t take the numbers at face value.
Although trading gains could drive strong earnings for banks such as JPMorgan Chase and Goldman Sachs, mounting loan losses and the prospect of tougher capital requirements and higher deposit insurance fees are expected to eat into the banks’ profits well into 2010 and beyond.
Moreover, after all the reports are in, investors might be seeing a fragmented earnings picture, with profits at large companies obscuring festering problems at banks of all sizes, and in the broader economy as well. Disappointing earnings could dim hopes for a meaningful economic recovery and slow the stock rally that began in March and propelled the Dow within sight of the 10,000 level.
A year after the housing crisis prompted a massive government bank bailout, the industry still faces the same problem: growing losses on loans as consumers and businesses default on debt.
Nationwide this year, 98 banks have failed and 416 are deemed a problem. Analysts expect more closures among small and regional banks due to losses on commercial real estate loans.
“Consumers still have problems, so that means more credit problems for banks,” said Brad Hintz, analyst at Sanford C. Bernstein & Co. “Those banks with strong capital markets activity will do better in the quarter. Those without will face challenges.”
Loan losses and related costs will probably keep the banking industry “from returning to normal until 2011,” Hintz said.
JPMorgan, which reports today, is expected to post profits of 49 cents a share, up from 11 cents for the same three-month period a year ago. Goldman, meanwhile, is expected to report profits of $4.24 per share on Thursday, up 57 percent.
Intel
The chip manufacturer’s third-quarter numbers show the company is getting better at doing more with less in the toughest stretch for the personal-computer industry in nearly a decade.
Intel said Tuesday that profit and sales both fell 8 percent in the July-September period, as the company was hurt by sluggish demand from businesses and lower prices for its chips. Intel has insisted things are improving and offered better-than-expected guidance for the fourth quarter, sending its shares up nearly 5 percent.
Intel said its net income was $1.9 billion, or 33 cents per share. Analysts expected 28 cents per share. Intel’s profit was $2.0 billion, or 35 cents a share, in the year-ago period.
Sales were $9.4 billion, better than Wall Street’s forecast of $9.0 billion.
Johnson & Johnson
The Band-Aid maker is feeling the pain as consumers worldwide buy more generic health products or just do without for as long as they can.
The company, the world’s most diversified health-products maker, saw revenue fall 5 percent in the third quarter as generic competition slashed sales of its prescription drugs, and recession- wary consumers limited spending.
J&J reported a 1 percent increase in third-quarter net income, at $3.35 billion, or $1.20 per share.
That was 7 cents better than analysts expected, but Credit Suisse analyst Catherine Arnold attributed 5 cents of that to an unexpectedly low tax rate and the rest to cost-cutting.
