Big banks’ earnings likely to disappoint

Sagging net interest margins may hurt Q2

NEW YORK Merger-mania may be the only thing that saves Wall Street’s top banks from a sour earnings season.

The nation’s largest banks will post second-quarter earnings this week, starting with JP Morgan Chase and Wells Fargo on Tuesday. And the expectation is for continued pain due to sagging net interest margins, or the spread between what a bank pays to borrow money and what it can charge on loans.

“It will be a difficult quarter,” said Erik Oja, banking analyst with S&P Capital IQ.

Indeed, Wall Street analysts are predicting lower earnings for the three months ended in June compared to last year’s second quarter for several of the big banks, including JP Morgan and Goldman Sachs, according to Fact Set, a financial data tracker. Analysts also expect depressed revenue overall compared to last year’s second quarter, Fact Set data show.

Last quarter, the banks proved they could offset the pain of historically low interest rates with strong growth in fees earned from mergers and other advisory work — as well as stellar trading profits at places like JP Morgan and Goldman Sachs.

Strong deal activity over the past three months suggests there could be room for another upside surprise, according to data from Dealogic, which tracks mergers and acquisitions.

Globally, $1.4 trillion in deals were announced in the second quarter, up from $918 billion in the first quarter and $1 trillion this time last year, data from Dealogic show.

In the U.S., the trend was similar with $660 billion worth of deals announced last quarter, up from $447 billion in the same period last year.

Wall Street often looks to investment bank Jefferies as a predictor of how the largest banks might fare in areas like investment banking and trading.

This quarter, however, Jefferies’ strong stock trading results, up 29%, may not be the best indicator because the firm missed the volatility that whacked stocks in June amid concerns about Greece breaking away from the European Union, experts said.