STOCK MARKET WATCH -- Wednesday, 10 April 2013

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28. Bank Rally in U.S. Seen Fading as Revenue Trails 35% Profit Jump

http://www.bloomberg.com/news/2013-04-10/bank-rally-in-u-s-seen-fading-as-revenue-trails-35-profit-jump.html

The six biggest U.S. banks are projected to post a 35 percent increase in first-quarter profit. That may fail to prolong an 18-month rally in their shares as the firms struggle to boost revenue.

The banks are set to report $19.9 billion in combined net income, analysts’ estimates compiled by Bloomberg show, with New York-based JPMorgan Chase & Co (JPM). and Wells Fargo & Co. (WFC) first to announce results on April 12. Revenue will climb just 2.2 percent, the data show. Since the end of 2011, the six banks’ shares have closed the gap with analysts’ price targets, signaling a possible end to the stock surge.

The shares rose as Europe contained its sovereign-debt crisis and Federal Reserve policies spurred a rebound in fixed- income trading. Lenders also added to profit by tapping funds that had been designated to cover loan losses. Now, as that income source runs dry, investors are looking for banks to boost profit with revenue growth, said Matt McCormick, a money manager at Bahl & Gaynor Investment Counsel Inc. in Cincinnati.

“Eventually these guys have to get earnings from non- accounting functions,” said McCormick, who helps oversee about $9 billion. “They’re going to have to focus on organic revenue, organic earnings. And when they’re not there, the momentum will fade.”