Wall Street is all over the map when it comes to predicting the results banks will show for the first quarter, making the phrase "consensus estimate" seem like a quaint notion of bygone days, before analysts had to figure out how to value toxic assets or measure the impact of government bailout measures.
The wide gulfs between the high and low forecasts for Citigroup Inc. and other lenders will make it difficult for companies to know for sure whether they have missed, matched or exceeded expectations, giving investors yet another reason to throw up their hands as they try to assess the worth of their bank stocks.
Complicating matters is the recent set of pronouncements from the Financial Accounting Standards Board, which relaxed mark-to-market valuation rules and gave companies more discretion in their treatment of impaired assets. The new rules officially go into effect in the second quarter, but companies have the option of applying them to first-quarter results.
"We don't know which banks are going in for early adoption and, if they are going in for early adoption, how these changes are going to affect their results," said Neena Mishra, senior banking analyst with Zacks Investment Research. "It really depends on how conservative or how aggressive a bank was earlier in taking writedowns."
Citigroup has been the most polarizing of the large banks, with Bloomberg LP data showing analyst forecasts that range from a first-quarter loss of $1.14 a share to a profit of 10 cents a share. At the high end is Barclays Capital analyst Jason Goldberg, who earlier had forecast a loss of 25 cents a share but revised his estimate to reflect expected improvements in capital market results and mortgage banking revenues.
"Recall, Citigroup already said it was profitable" for the first two months of the year, Goldberg wrote in a client note this week. "We believe this statement includes all marks and provisions, and highlight that Citigroup typically sets its consumer loan loss reserves at the end of the second month of the quarter."
But most of the 14 estimates included in Bloomberg's consensus data predict that the company will be in the red, making the average forecast a loss of 33 cents a share.
The $1.24 spread between the high and low estimates for Citigroup is narrower than the range seen in last year's first quarter, when the difference between the rosiest and gloomiest estimates was $2.14 a share. But the disparity is still striking compared with pre-crisis times. For the first quarter of 2007, estimates for Citigroup's profit ranged from just $1.04 to $1.16 a share, with no analyst more than 7 cents away from the mean.
And it's not just Citi.
Analysts' first-quarter earnings estimates range from 11 cents to 45 cents a share for JPMorgan Chase & Co. and from 6 cents to 55 cents for Wells Fargo & Co. For Bank of America Corp., forecasts range from a loss of 22 cents to a profit of 20 cents, for an average earnings estimate of 4 cents a share, based on Bloomberg data.
A company's ability to meet or beat analyst estimates used to be critical to shareholders come earnings season, generating dramatic swings in stock market valuation. But now, even those that trounce Wall Street's estimates are finding that a pop in stock price is no guarantee. Goldman Sachs & Co. this week reported quarterly earnings of $3.39 a share, well above analysts' $1.64 average forecast and better than the $2.80 estimate at the top end of the range. But the firm's shares plunged more than 11% as investors wondered whether the results — made all the more complicated to compare because the company pushed back its fiscal yearend by a month — would be sustainable.