CEOs at Morgan Stanley and Goldman Sachs have been declaring the nearly yearlong credit crisis in the financial markets is at or near an end. This week Wall Street will get a clue as to whether their views are reality or merely wishful thinking.
A more cautionary view is likely to be fueled by news that Wachovia may be getting a capital infusion of several billion dollars from outside investors, according to a report on WSJ.com.
Tomorrow kicks off a fresh spate of revelations on bank writedowns and provisions for further loan losses, and the consensus that passes for optimism these days is that things can’t get any worse.
“Expectations are pretty low out there, and if things are bad and not disastrous, I don’t think the financials will go down materially on just bad news,” said Peter Goldman, portfolio manager at Chicago Asset Management.
But if General Electric’s huge first-quarter earnings miss on Friday is any indication, the worst may be just getting started.
That’s bad news for New York-based firms JPMorgan Chase and Citigroup, which both have large consumer-credit and mortgage-lending platforms. The banks report first-quarter results on Wednesday and Friday, respectively.
“We think it’s going to be continued pressure on credit quality across the board,” said David Hendler, financial analyst at CrediitSights. He is expecting further writedowns in so-called collateralized debt obligations and leveraged debt instruments.
Hendler forecasts provisions for losses in home equity loans, credit cards and other areas of about $9 billion or $10 billion.
“We’re in a recession. No one wants to say it, but we’re in a recession,” Hendler said.
Credit card losses are going to be much higher at Citi and JPMorgan,” Hendler predicts. “The economy is not helping them in terms of moderating losses. [Banks] are getting hit not only in the mainstream but in their broad lending books.”
Washington Mutual reports tomorrow, and a crush of other banks and savings and loans are due to report Thursday.