PREVIEW: Earnings At 6 Huge US Banks (C, JPM, WFC, MS, GS, BAC)

NEW YORK (AP) — Investors are bracing for a rough earnings season from banks.

Turbulence in stock and bond markets, combined with waning confidence among business and consumers, hurt banks' business in the third quarter. IPOs were shelved, companies postponed plans to sell bonds, and acquisitions were put on ice. Consumers also held back on spending.

The sharp drop in business activity hurt banks, which rely on borrowing by companies and consumers to make money. Most Wall Street analysts lowered their earnings estimates for large U.S. banks.

JPMorgan Chase & Co. will be the first major bank to report results Thursday, followed by Citigroup, Wells Fargo, Bank of America and Goldman Sachs the week after.

The intense global market turmoil during the third quarter has already taken a toll on bank stocks. The KBW index of leading banks plunged 27 percent during the third quarter.

Howard Chen, an analyst at Credit Suisse, estimates that mergers and acquisitions volume in the third quarter plummeted 34 percent from the prior quarter, while stock underwriting sank 54 percent.

Chen said it was the weakest quarter for total debt issuance since the financial crisis. Overall debt and loan underwriting volume fell 27 percent from the previous quarter, leading to a 35 percent decrease in fees.

Worries about Europe's debt problems continued to hang over U.S. banks in the third quarter. Investors expect bank executives to offer more clarification on how exposed the banks are to the crisis when the banks host conference calls to discuss their earnings.

Most large banks have disclosed the amount of European debt they own, but it's unclear how much exposure they have via more complex derivatives trades they conduct with their counterparts in Europe. For example, U.S. banks sell financial contracts that act as insurance to protect against defaults on riskier European bonds.

Growth in U.S. business loans is expected to be a bright spot. According to the Federal Reserve, corporate borrowing grew rapidly during the third quarter. At the 25 largest banks by assets, commercial and industrial loans grew 15 percent, the Fed reported.

Here are the consensus earnings forecasts and highlights for each of the large U.S. banks from analysts surveyed by FactSet:

— JPMorgan Chase & Co. reports Thursday. It is expected to earn 96 cents per share on revenue of $23.6 billion. Considered one of the strongest and most stable among the large banks, analysts expect JPMorgan to grab market share from competitors. However, it might be forced to once again to put aside more reserves to offset costs from increased litigation and repurchasing poorly written mortgage loans.

— Citigroup Inc. reports on Monday, Oct. 17. The New York bank is expected to report earnings of 84 cents per share on revenue of $19.3 billion. Barclays Capital analyst Jason Goldberg reduced his estimates by 11 cents because of weakness in investment banking and the increasingly uncertain global economy.

— Wells Fargo & Co. also reports Monday. The San Francisco bank is expected to earn 72 cents a share on revenue of $20.2 billion. Wells has one of the largest mortgage origination businesses of all banks and will likely have benefited from lower mortgage rates. Rates on 30-year mortgages hit a historic low of 4.08 percent in the third quarter.

— Bank of America Corp. reports Tuesday, Oct. 18. Analysts expect the Charlotte, N.C. bank to report earnings of 26 cents per share on revenue of $25.8 billion. The bank has been battling lawsuits related to mortgages. It paid out $12.7 billion to settle claims in the first half of the year. Its Merrill Lynch investment banking and brokerage division helped lift earnings in the first half of 2011, but Merrill is unlikely not be of much help this quarter because of low trading volumes.

— Goldman Sachs Group Inc. also releases results Tuesday. It is expected to earn 23 cents per share on revenue of $5.3 billion. Chen, of Credit Suisse, is more negative than other analysts on the New York bank. Chen wrote in a report that the difficult market conditions and low appetite for risk among investment banking and trading clients could lead to a third quarter loss of 70 cents a share. If that happens, Chen notes that it would be only the second quarterly loss for Goldman since the bank went public in 1999.

— Morgan Stanley will report on Wednesday, Oct. 19. Analysts estimate it will earn 31 cents per share on revenue of $7.5 billion. A sharp downturn in the investment advisory business is expected to hurt Morgan Stanley. Wells Fargo analyst Matthew Burnell lowered his earnings estimate to 26 cents from 56 cents per share because of weakness in trading. Executives are expected to shed more light on the bank's exposure to European debt and derivatives during their conference call. Worries about Europe have spooked Morgan Stanley investors lately, helping send the stock down 44 percent this year.

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JOBS PREVIEW: Another Weak Report

Calculated Risk is a leading finance and economics blog written by Bill McBride

The BLS will release the August Employment Situation Summary at 8:30 AM ET. Bloomberg is showing the consensus is for an increase of 67,000 payroll jobs in August, and for the unemployment rate to hold steady at 9.1%.

Once again estimates all over the place, including more whispers of a negative headline number. This isn't surprising since the economic data for August was very weak - especially during the first couple weeks of the month as the shock of a possible U.S. government default rattled consumer and business confidence.

The BLS survey reference week includes the 12th of the month, and the 12th fell on a Friday in August - at the end of the 2nd full week and just after the economic freeze due to the D.C. debate. So even with slightly less worrisome economic reports towards the end of the month, it is possible that the headline number could be below consensus or even negative.

An added wrinkle was the labor dispute at Verizon. I've seen several estimates, but the Verizon dispute (since settled) probably reduced employment by 45,000 in August (these will be added back in September).

So these two factors, 1) a reference period right after a significant shock, and 2) the Verizon labor dispute, suggest a weak employment report.

Here is a summary of recent data:

• The ADP employment report showed an increase of 91,000 private sector payroll jobs in August. Of course ADP hasn't been very useful in predicting the BLS report. Also note that government payrolls have been shrinking by about 30,000 each month. The ADP does use the same reference week as the BLS, and this would suggest around 60,000 nonfarm payroll jobs added.

• Initial weekly unemployment claims averaged about 410,000 per week in August, down slightly from the 412,000 average in July.

• The ISM manufacturing employment index decreased to 51.8%, down from 53.5% in July. Based on a historical correlation between the ISM index and the BLS employment report for manufacturing, this reading suggests a decline of about 10,000 private payroll jobs for manufacturing in August. Note: The ISM non-manufacturing index for August will be released next Tuesday.

• The final July Reuters / University of Michigan consumer sentiment index decreased to 55.7 from 63.7 in July. This is frequently coincident with changes in the labor market, but also strongly related to gasoline prices and other factors. This was probably impacted by the debt ceiling debate, but in general this would suggest a weak labor market.

• And on the unemployment rate from Gallup: Gallup Finds U.S. Unemployment Up in August

Unemployment, as measured by Gallup without seasonal adjustment, is at 9.1% at the end of August -- up from 8.8% at the end of July.

These data further confirm Gallup's mid-month prediction that the August unemployment rate that the government will report Friday will be higher than the 9.1% it reported in July -- barring another sizable decline in the U.S. workforce or an unusual seasonal adjustment.

NOTE: The Gallup poll results are Not Seasonally Adjusted (NSA), so use with caution. Usually the NSA unemployment rate declines in August, so this would suggest an increase in the unemployment rate.

Because of the reference period following so soon after an economic shock, and also because of the Verizon labor dispute, I'll take the "under" on the number of jobs added (less than 67,000). I'll also take the over on the unemployment rate (I expect higher than 9.1%).

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