Bank earnings may be "frightful"

By Jonathan Stempel

NEW YORK (Reuters) - 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.

WIDER PAIN

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.