For battered US bank shares, earnings may make or break

NEW YORK, March 28 (Reuters) – Further relief from the US bank stocks rout may have to wait until banks report quarterly results starting next month, which strategists said could give more details about the sector’s overall health after the recent collapse of some big regional players.

Bank shares rebounded Monday after First Citizens BancShares Inc (FCNCA) said it would acquire the deposits and loans of Silicon Valley Bank, whose meltdown sparked the selloff in the sector earlier this month.

Even so, the S&P 500 bank index is down 16% since March 8, two days before Silicon Valley’s collapse, with the failure of Signature Bank and problems at other banks adding to the turmoil.

The bank index is on track for its biggest monthly percentage drop since the start of the pandemic in 2020, and its price-to-earnings ratio is now at 8.9 compared with 10.61 on March 8, well below its five-year average of 12.12, according to Refinitiv data.

Some say quarterly results could be key to what happens next with bank shares.

“Not until you see the numbers and hear management talk about the balance sheet and their business and what the rest of the year looks like is there potential for things to calm down,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

“That could stabilize the industry,” or have the opposite effect, depending on what bank executives say, he said.

Results from the big US banks kick off mid-April when JPMorgan Chase & Co (JPM) and others are due to report.

Among other financials, Jefferies Financial Group (JEF) is expected to report quarterly results after the closing bell Tuesday.

Management teams will be busy preparing balance sheets “to look as good as they can” ahead of the reports, Tuz said.

The bank failures come as S&P 500 companies are headed for their second straight decline in year-over-year quarterly earnings, which would mark the first profit recession for US companies since COVID-19 hit corporate results in 2020.

Analysts expect S&P 500 earnings to fall 4.6% in the first quarter of 2023 from the year-ago period. Earnings declined an estimated 3.2% in the fourth quarter of 2022, based on Refinitiv data as of Friday.

They are forecasting S&P 500 financials to post year-over-year earnings growth in the first quarter of 5.4%, making it among just four sectors whose earnings are expected to climb.

To be sure, concern about the banks has echoed worries about global finances after the US housing market cratered and stoked the global financial crisis in 2007 to 2009.

“It may not be the case where banks report in April and if everything looks fine, then we all go about our merry way,” said Ed Clissold, chief US strategist at Ned Davis Research in Sarasota, Florida. “The market’s too dynamic and money moves too quickly.”

Still, John Carey, portfolio manager at Amundi US in Boston, said credit quality now “is generally better than it was back in the ’07-09 period.”

With earnings, “we’ll have some concrete results to go by,” he said. “Confidence could come back into the market. Some of the companies may be relatively well positioned versus their peers.”

(Reporting by Caroline Valetkevitch; additional reporting by Sinead Carew and Saqib Iqbal Ahmed in New York; Editing by Alden Bentley and Leslie Adler)