The reasons vary, but after a long and virtually unblemished run of profitability growth that powered bank stocks to new highs, a few disappointments have crept into their earnings.
Several analysts wonder whether the next letdown could come as early as today when First Chicago NBD Corp. unveils its second-quarter results. If so, loan quality in its big credit card business could be the main reason.
On Tuesday, investors will get results from Wells Fargo & Co., which cautioned Wall Street last week that they will be far less than expected because of merger costs. Wells' shares plunged and now rank as the worst- performing among the nation's 50 largest banks.
J.P. Morgan & Co., after reducing analysts' expectations, managed to top their consensus earnings projection but still posted a 15% decline from a year ago because of lower trading revenues and higher expenses.
Meanwhile, revenue trends at some major banks that posted earnings as anticipated, notably Chase Manhattan Corp., have also caused concern.
Joseph J. Labriola, head of corporate bond research at PaineWebber Inc., said last week he doubted that First Chicago would meet second-quarter earnings expectations of $1.20 per share because of difficulties with credit quality.
"It is likely that they will continue to get added pressure in their credit card business from higher losses and delinquencies," noted Mr. Labriola. "This is further compounded by the fact that their corporate lending has not been as profitable as other banking institutions'."
Mr. Labriola noted that all banks with credit card businesses are likely to see higher losses in that area this quarter but that banking companies such as Citicorp can balance chargeoffs against strong revenues from other businesses or diversified credit portfolios.
Analyst Katharine Rossow of Chase Securities Inc. also noted the possibility of a shortfall, saying that First Chicago is "a question because of their credit card business."
Analyst Thomas Maier of Everen Securities, Chicago, took a milder view of First Chicago NBD. "It is always possible" the company's earnings could fall short, he said, but "it won't be by much." He said he expects the company to earn $1.20 a share, matching the consensus.
In addition to its problems with credit cards, the company, like Morgan, also had difficulties with trading revenues during the quarter, he said.
An earnings disappointment at one of the industry's signal companies could have a spillover effect on other bank stocks.
That was amply demonstrated last week after Wells stock plunged almost 18% on the day the company announced it would fall short of second-quarter earnings expectations. Other bank stocks were temporarily dragged down.
Some analysts sharply dispute the notion of earnings problems in the industry. George M. Salem of Gerard Klauer Mattison & Co. bristled at the impression that Wells' unsatisfying results would be an omen of bad news elsewhere.
"The whole idea is atrocious," said Mr. Salem. "There was no connection between the other banks and Wells. Wells is an isolated incident. There is no problem with bank earnings. SunTrust Inc., Barnett, and First Bank System all came out with healthy earnings. You just can't paint the industry with one stroke."
Other analysts see a few more clouds on the horizon than bank stock investors have been used to in recent years. Mr. Labriola acknowledged that a trend is not readily apparent but asserted that the heady momentum that banks have had is on the wane.
"Earnings growth could slow in the second part of the year," said Mr. Labriola, "triggered by a pullback in lending and a tightening of underwriting standards."
Everen's Mr. Maier said he expects bank earnings overall this quarter to meet expectations but agreed that challenges to revenue growth loom.
"Revenue growth is stepping down, and expense controls and share repurchases have become more significant drivers of earnings per share," he said. "In the coming periods they will have to distinguish themselves from the pack."