It is only April, but some on Wall Street are already predicting a rotten 2016 for U.S. banks.
Analysts say it has been the worst start to the year since the financial crisis in 2007-2008 and expect poor first-quarter results when reporting begins this week.
Concerns about economic growth in China, the impact of persistently low oil prices on the energy sector, and near-zero interest rates are weighing on capital markets activity as well as loan growth.
Analysts forecast a 20 percent decline on average in earnings from the six biggest U.S. banks, according to Thomson Reuters I/B/E/S data. Some banks, including Goldman Sachs Group Inc (GS.N), are expected to report the worst results in over ten years.
This spells trouble for the financial sector more broadly, since banks typically generate at least a third of their annual revenue during the first three months of the year.
“What’s concerning people is they’re saying, ‘Is this going to spill over into other quarters?'” Goldman’s lead banking analyst Richard Ramsden said in an interview. “If you do have a significant decline in revenues, there is a limit to how much you can cut costs to keep things in equilibrium.”
Investors will get some insight on Wednesday, when earnings season kicks off with JPMorgan Chase & Co (JPM.N), the country’s largest bank. That will be followed by Bank of America Corp (BAC.N) and Wells Fargo & Co (WFC.N) on Thursday, Citigroup Inc (C.N) on Friday, and Morgan Stanley (MS.N) and Goldman Sachs Group Inc (GS.N) on Monday and Tuesday, respectively, in the following week.
Banks have been struggling to generate more revenue for years, while adapting to a panoply of new regulations that have raised the cost of doing business substantially.
The biggest challenge has been fixed-income trading, where heavy capital requirements, new derivatives rules, and restrictions on proprietary trading have made it less profitable, leading most banks to simply shrink the business.