Profit estimates for Bank of America Corp. and other large U.S. lenders may need to be slashed as much as 30 percent if economic growth slows to 1 percent or less, according to analysts at Deutsche Bank AG.
Consensus earnings estimates assume that gross domestic product will expand at an annual rate of 3 percent or more, Deutsche Bank analysts led by Matt O’Connor wrote in a note to investors. O’Connor’s team produced estimates that reflect slower economic growth, the note said.
Their assumptions include no change in short or long-term interest rates, a U.S. jobless rate of 10 percent to 10.5 percent and a further 10 percent to 15 percent drop in stock markets, the note said. With some exceptions, the banks would experience a 0.1 percentage point drop in net interest margins next year and a 0.15 percentage point decline in 2013 compared with the level in the second quarter of 2011, the note said.
“Based on the above assumptions, we find that both 2012 and 2013 EPS consensus estimates could fall by 25 to 30 percent,” the note said, referring the consensus of Wall Street analysts’ estimates.
Lenders with the most risk are Bank of America, Memphis, Tennessee-based First Horizon National Corp., and Regions Financial Corp., based in Birmingham, Alabama. The least risk is at Buffalo, New York-based M&T Bank Corp., Minneapolis-based U.S. Bancorp and Wells Fargo & Co. in San Francisco.
Under the low-growth scenario, Deutsche Bank estimates that Charlotte, North Carolina-based Bank of America, the biggest U.S. lender by assets, would earn 47 cents a share in 2012 instead of the “consensus estimate” of $1.51, the note said. The company’s 2013 per-share earnings would be cut to 96 cents from the $1.89 expected by the consensus, the note said.
The 2012 estimate for First Horizon would drop to 29 cents from 76 cents, while Regions Financial’s would decline to 30 cents from 61 cents, O’Connor’s team wrote.
JPMorgan Chase & Co., the second-largest U.S. bank, would earn $4.02 in 2012 under the low-growth scenario instead of the $5.68 consensus estimate, the note said. Citigroup Inc., the third-largest bank, would make $3.14 a share in 2012 instead of $5.22 a share, the analysts estimate. Both are based in New York.