Dismal Opening Quarter for Banks Could Mean Trouble for 2016

Some analysts in the U.S. already are predicting a difficult 2016 for banks in the U.S. and it is just April.

Insiders say it has been the worst beginning to the year since the 2007-2008 financial crisis hit and expect poor results from the first quarter when the quarterly reports begin this week.

Concerns about the growth of the economy in China, the low oil prices’ impact on the overall energy sector and the interest rates near zero are all weighing down the capital markets activity along with loan growth.

Analysts have forecasted a decline of 20% on average for first quarter earnings from the six largest banks based in the U.S.

Some banks, which include Goldman Sachs Group, are expected to post their worst reports in more than a decade.

That spells serious trouble for the country’s financial sector on a more broader basis, since banks are the ones that typically generate up to one third of all their revenue for the year over the first three months of the calendar year.

One analyst on Wall Street said the worrying part is that people have said it would spill over into more quarters. If there is a significant drop in revenue, there could be a limit to the amount of costs that could be cut to keep equilibrium.

Investors will receive some insight this Wednesday when the quarterly earnings season will kick off when JPMorgan Chase & Co the largest bank in the country, reports its first quarter earnings.

The bank will be followed by the Bank of America and Wells Fargo Thursday, Citigroup on Friday and Morgan Stanley followed by Goldman Sachs on Monday and Tuesday of next week.

Banks have struggled to generate revenue for a number of years, while trying to adapt to an array of new regulations, which have raised the costs substantially of doing business.

The most troubling challenge has been the area of fixed-income trading where heavy requirement of capital, new rules for derivatives and restrictions on the proprietary trading have caused it to be much less profitable which has led banks to shrink that business.