For most Wall Street bankers, 2011 was a year they would rather forget. Investors will soon find out just how bad that year was for the country's biggest financial institutions.
In recent days, analysts have been lowering their fourth-quarter earnings estimates for Goldman Sachs, Morgan Stanley, Citigroup and Bank of America.
Analysts are also bracing for lower earnings from JPMorgan Chase, which on Friday will be the first of the Wall Street banks to report results.
"It's likely 2011 will be the worst year for revenue growth for the banks since 1938, and so far 2012 isn't feeling much better," said Michael Mayo, an analyst with Credit Agricole Securities and the author of the recently published book "Exile on Wall Street: One Analyst's Fight to Save the Big Banks From Themselves."
"The industry simply grew too fast over the past two decades and now it's downshifting. This process will take time, but the hit to revenue is happening now."
Wall Street banks have been buffeted by a weak economy in the United States and by concerns that the European debt crisis will spread, sending shock waves through the financial system.
At the same time, most banks are expected to book an accounting loss in the fourth quarter from the performance of their own debt. In the previous quarter, this one-time item significantly bolstered the earnings of a number of banks.
With business sluggish, Wall Street banks have been chopping staff and expenses. A dismal 2011 will translate into smaller employee bonuses, which most banks will begin handing out in the coming weeks.
Compensation experts are estimating compensation for Wall Street employees could fall as much as 30 per cent from levels a year ago.
While sharply lower bonuses may be politically popular, they will also eat into the revenue that New York state collects from Wall Street.
The challenges facing Wall Street are illustrated by the performance of Goldman Sachs - for years the envy of rivals for its ability to churn out rich profits even in rough times - in recent quarters.
In the third quarter, Goldman reported a loss of $428 million, in contrast to a $1.74 billion profit a year ago.
Goldman's chief executive, Lloyd C. Blankfein, told investors that Goldman was "disappointed" in the performance.
For the fourth quarter, the firm is projected to post a profit of $2.02 a share, according to a survey of analysts by Thomson Reuters.
That consensus number is down from $2.81 a month ago. And it is likely to fall further in the coming days as more analysts weigh in with new estimates. Some analysts already have Goldman, which reports on Jan. 18, earning less than $1 a share in the fourth quarter.
New regulations combined with a drop in client trading revenue and the falling value of some of its core equity holdings, like the Industrial and Commercial Bank of China, a strategic investment the firm made in 2006, hurt Goldman in the third quarter. Equity markets, however, improved in the fourth quarter, so Goldman should gain from some of the same investments that ate into profits just a few months ago.
indiatimes.com
In recent days, analysts have been lowering their fourth-quarter earnings estimates for Goldman Sachs, Morgan Stanley, Citigroup and Bank of America.
Analysts are also bracing for lower earnings from JPMorgan Chase, which on Friday will be the first of the Wall Street banks to report results.
"It's likely 2011 will be the worst year for revenue growth for the banks since 1938, and so far 2012 isn't feeling much better," said Michael Mayo, an analyst with Credit Agricole Securities and the author of the recently published book "Exile on Wall Street: One Analyst's Fight to Save the Big Banks From Themselves."
"The industry simply grew too fast over the past two decades and now it's downshifting. This process will take time, but the hit to revenue is happening now."
Wall Street banks have been buffeted by a weak economy in the United States and by concerns that the European debt crisis will spread, sending shock waves through the financial system.
At the same time, most banks are expected to book an accounting loss in the fourth quarter from the performance of their own debt. In the previous quarter, this one-time item significantly bolstered the earnings of a number of banks.
With business sluggish, Wall Street banks have been chopping staff and expenses. A dismal 2011 will translate into smaller employee bonuses, which most banks will begin handing out in the coming weeks.
Compensation experts are estimating compensation for Wall Street employees could fall as much as 30 per cent from levels a year ago.
While sharply lower bonuses may be politically popular, they will also eat into the revenue that New York state collects from Wall Street.
The challenges facing Wall Street are illustrated by the performance of Goldman Sachs - for years the envy of rivals for its ability to churn out rich profits even in rough times - in recent quarters.
In the third quarter, Goldman reported a loss of $428 million, in contrast to a $1.74 billion profit a year ago.
Goldman's chief executive, Lloyd C. Blankfein, told investors that Goldman was "disappointed" in the performance.
For the fourth quarter, the firm is projected to post a profit of $2.02 a share, according to a survey of analysts by Thomson Reuters.
That consensus number is down from $2.81 a month ago. And it is likely to fall further in the coming days as more analysts weigh in with new estimates. Some analysts already have Goldman, which reports on Jan. 18, earning less than $1 a share in the fourth quarter.
New regulations combined with a drop in client trading revenue and the falling value of some of its core equity holdings, like the Industrial and Commercial Bank of China, a strategic investment the firm made in 2006, hurt Goldman in the third quarter. Equity markets, however, improved in the fourth quarter, so Goldman should gain from some of the same investments that ate into profits just a few months ago.
indiatimes.com
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