The housing industry remains guarded as second-quarter earnings are estimated to trend down slightly for most U.S. banks, presenting a questionable future for the market.
Kroll Bond Rating Agency released its Q2 2014 Bank Earnings Preview, which cautioned that there will be persistent challenges in areas such as mortgage finance, capital markets and net interest margins for the next several years.
And banks will feel the weight of that, Kroll said.
“Over the next several years, we believe that the business models of large banks will be changing significantly as the importance of mortgage lending and servicing declines relative to other activities. Indeed, among U.S. depository institutions, credit unions are the only sector currently increasing their exposure to the mortgage market,” the report said.
Volatility in market interest rates and a lackluster economy spurred a difficult first quarter, and the second half of the year won't be much better as “a lack of visibility as to the future direction of interest rates will be a reoccurring theme for banks and markets during the rest of 2014.”
The first bank to release its earnings will be mortgage giant Wells Fargo (WFC) on Friday morning.
While the bank is the market-share leader in the origination and servicing of 1-4 family mortgage loans, Kroll cautioned, “Given the decline in mortgage lending volumes experienced by WFC and other large banks, as well as the zero-rate policy of the FOMC, it may be difficult for the bank to deliver positive revenue growth in 2014 and beyond.”
During the first-quarter of 2014, Wells Fargo reported record net income of $5.9 billion, up 14%, or $1.05 per diluted common share, around expectations.
“Wells Fargo will set the tone for the banking industry but unfortunately will not provide a strong read into investment banking performance as JPMorgan Chase (JPM) is not reporting until next Tuesday, which is a rare occurrence for the bank,” Breifing.com said.