NEW YORK Government efforts to prop up U.S. banks and savings institutions have only partly cushioned the blow from what may have been the industry's worst three-month period since 1990.
"Credit trends are going to be bad," said Gary Townsend, co-founder of Hill-Townsend Capital in Chevy Chase, Maryland. "No one is immune. If you are a bank, and have loans, you will suffer your share."
Rising credit losses, poor economic conditions including a surge in unemployment, tighter lending margins and the cost of luring deposits are likely to dampen results at most of the nation's biggest lenders for the just-ended quarter.
Dismal bottom-line results, however, will quickly fade into the rear-view mirror as investors focus on how much lenders plan to boost reserves for soured loans, take new steps to preserve capital, or eliminate more jobs.
Earnings season is set to kick off Thursday when Wisconsin's Marshall & Ilsley Corp is scheduled to report. The largest lenders -- Bank of America Corp, JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co -- report later in the month.
Results may be "frightful," Sanford C. Bernstein & Co analyst John McDonald wrote. While credit and capital will be critical, he said falling margins will weigh on net interest income, while fee income may be "under siege" because of volatile capital markets and lower spending by customers.
Most of the largest lenders are expected to report lower earnings per share than a year earlier, according to analyst forecasts compiled by Reuters Estimates.
Citigroup and Alabama's Regions Financial Corp may post losses, while Ohio lenders Fifth Third Bancorp and KeyCorp may come close to breaking even, analysts on average predicted.
Last week, the American Bankers Association trade group said consumer credit delinquencies are at a 28-year high, and are likely to head even higher.
Problems for banks are not concentrated only in housing.
A weakened economy, with unemployment at a nearly 16-year high, should cause loan losses to bleed beyond housing and further into credit card, commercial, construction and industrial loans.
Analysts expect another round of dividend cuts and capital raising, even after the disbursement of much of the first half of the government $700 billion Troubled Asset Relief Program.
Citigroup has already gone to the well twice, taking $45 billion from TARP and slashing its quarterly dividend to a penny per share. The bank has entered advanced talks with Morgan Stanley on a joint venture for their brokerage operations, a person familiar with the matter said on Friday.
Oppenheimer & Co analyst Meredith Whitney wrote on January 6 that banks receiving TARP money will report "meaningfully lower" capital levels as of December 31 than they had after they got the infusions.
She said banks will need more capital in the face of up to $40 billion of further writedowns as asset prices fall, and credit ratings are lowered on mortgage-related securities.
The credit crisis has already caused the demise of many large U.S. lenders whose viability was under threat.
These include Merrill Lynch & Co, swallowed by Bank of America; Washington Mutual Inc, which failed and was taken over by JPMorgan; Wachovia Corp, bought by Wells Fargo; and National City Corp, bought by PNC Financial Services Group Inc.
Analysts including RBC Capital Markets' Gerard Cassidy expect hundreds of additional lenders to fail in 2009, following 25 failures last year.
President-elect Barack Obama is expected to draw down much if not all of the remaining TARP money, despite the widespread belief that banks are not using infusions to lend.
MORE DIVIDEND CUTS?
Bank stocks have not done well either. The 24-member KBW Bank Index has fallen 53 percent in the last year. Shares of many banks trade at below book value. Bank of America and Citigroup trade at less than half of book value.
Many banks have dividend yields in the high single digits or above. Some analysts believe Bank of America, Dallas-based Comerica Inc and Atlanta's SunTrust Banks Inc may cut their payouts, despite having done so in the last four months. Marshall & Ilsley may also face a cut, analysts said.
SunTrust spokesman Barry Koling said that bank historically announces its first-quarter dividend in mid-February, and is "very aware of heightened interest in this issue" now.
A Marshall & Ilsley spokeswoman referred to the bank's October pledge to set a payout that would "ensure a strong capital base through this economic down cycle."
Comerica spokesman Wayne Mielke said that bank's board will review its dividend "in due course." Bank of America spokesman Scott Silvestri declined to comment.
Townsend said investors may wish to look at lenders such as PNC and U.S. Bancorp, where credit quality may remain better than at peers. But he is cautious on the recent big acquisitions, all announced before, or early in, the quarter.
On December 11, JPMorgan Chief Executive Jamie Dimon said on CNBC television that November and the first part of December had been "terrible" for the bank. JPMorgan got some government backing when it took over Washington Mutual on September 25.
"No one could have predicted how severe the downturn in the economy would be," Townsend said. "It seems to me that Jamie Dimon has been particularly upfront in his public comments to suggest the WaMu experience could be worse."