PREVIEW-U.S. bank results to show who flunked credit class
* Losses to swell from credit cards, commercial lending
* Several big lenders with taxpayer funds to lose money
* Capital markets, mortgages could help
By Jonathan Stempel
NEW YORK, July 7 (Reuters) - For the largest U.S. banks, the second quarter and beyond may be all about credit.
With concerns about large lenders' capital levels on the wane after well over $60 billion of stock sales last quarter, investors will focus on how broadly credit is deteriorating, with particular emphasis on credit cards, commercial loans and commercial real estate.
At the same time, banks will need to demonstrate strong profitability before accounting for credit weakness, in the face of weak demand for loans as consumers worried about the recession and near 10 percent unemployment try to save more.
There is growing optimism for the sector, especially after the federal government in June let 10 of the largest lenders repay more than $68 billion of bailout money taken from the Troubled Asset Relief Program.
Yet there is no sense that the credit crisis, which set in roughly two years ago, is anywhere near over.
"I don't think we're out of the woods, though we're getting closer," said Michael Nix, who helps invest $700 million at Greenwood Capital Associates LLC in Greenwood, South Carolina.
"Investors will focus on how banks are dealing with credit cards and commercial loans after some pretty significant erosion."
The firm owns Bank of America Corp (BAC.N), Morgan Stanley (MS.N) and State Street Corp (STT.N) shares.
Goldman Sachs Group Inc (GS.N) kicks off second-quarter earnings season on July 14. JPMorgan Chase & Co (JPM.N), Bank of America Corp (BAC.N) and Citigroup Inc (C.N) also report results that week. Many rivals report the following week, including Wells Fargo & Co (WFC.N).
Banks with large capital markets, mortgage and proprietary trading operations may get a boost to results. Regional banks with higher concentrations of commercial loans may fare worse and many small banks could be hit hard.
Fifty-two federally insured lenders have failed this year, the most since 1992, Federal Deposit Insurance Corp data show. Analysts say hundreds might follow over the next three years.
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