For battered U.S. bank shares, earnings may make or break

First Citizens Bancshares (Tennessee)

28/03/2023 12:00

By Caroline Valetkevitch
       NEW YORK, March 28 (Reuters) - 
    Further relief from the U.S. bank stocks rout may have to
wait until banks report quarterly results starting next month,
which strategists said could give more details about the
sector's overall health after the recent collapse of some big
regional players.
        Bank shares rebounded Monday after First Citizens
BancShares Inc  FCNCA.O  said it would acquire the deposits and
loans of Silicon Valley Bank, whose meltdown sparked the selloff
in the sector earlier this month.
        Even so, the S&P 500 bank index  .SPXBK  is down 16%
since March 8, two days before Silicon Valley's collapse, with
the failure of Signature Bank and problems at other banks adding
to the turmoil.
        The bank index is on track for its biggest monthly
percentage drop since the start of the pandemic in 2020, and its
price-to-earnings ratio is now at 8.9 compared with 10.61 on
March 8, well below its five-year average of 12.12, according to
Refinitiv data.
    Some say quarterly results could be key to what happens next
with bank shares.
    "Not until you see the numbers and hear management talk
about the balance sheet and their business and what the rest of
the year looks like is there potential for things to calm down,"
said Peter Tuz, president of Chase Investment Counsel in
Charlottesville, Virginia.
    "That could stabilize the industry," or have the opposite
effect, depending on what bank executives say, he said. 
    Results from the big U.S. banks kick off mid-April when
JPMorgan Chase & Co  JPM.N  and others are due to report. 
    Among other financials, Jefferies Financial Group  JEF.N  is
expected to report quarterly results after the closing bell
Tuesday.
    Management teams will be busy preparing balance sheets "to
look as good as they can" ahead of the reports, Tuz said.
    The bank failures come as S&P 500  .SPX  companies are
headed for their second straight decline in year-over-year
quarterly earnings, which would mark the first profit recession
for U.S. companies since COVID-19 hit corporate results in 2020.
    Analysts expect S&P 500 earnings to fall 4.6% in the first
quarter of 2023 from the year-ago period. Earnings declined an
estimated 3.2% in the fourth quarter of 2022, based on Refinitiv
data as of Friday. 
    They are forecasting S&P 500 financials  .SPSY  to post
year-over-year earnings growth in the first quarter of 5.4%,
making it among just four sectors whose earnings are expected to
climb.
    To be sure, concern about the banks has echoed worries about
global finances after the U.S. housing market cratered and
stoked the global financial crisis in 2007 to 2009.
    "It may not be the case where banks report in April and if
everything looks fine, then we all go about our merry way," said
Ed Clissold, chief U.S. strategist at Ned Davis Research in
Sarasota, Florida. "The market's too dynamic and money moves too
quickly."
    Still, John Carey, portfolio manager at Amundi US in Boston,
said credit quality now "is generally better than it was back in
the '07-09 period."
    With earnings, "we'll have some concrete results to go by,"
he said. "Confidence could come back into the market. Some of
the companies may be relatively well positioned versus their
peers."

 (Reporting by Caroline Valetkevitch; additional reporting by
Sinead Carew and Saqib Iqbal Ahmed in New York; Editing by Alden
Bentley and Leslie Adler)
 ((caroline.valetkevitch@thomsonreuters.com))