Financial Profits Face A 40% Drop in Second Quarter
Financial companies face another 40 percent decline in earnings for the second quarter, yet have held up well considering all the problems the sector has faced, Michael Thompson, managing director of Thomson Reuters, said.
As the sector tries to battle its way out of a hole created by billions of dollars in subprime writedowns, Thompson said, the group will continue to square up balance sheets and probably see a turnaround by the fourth quarter.
"The financials, considering they're down 72 percent over the same quarter last year, actually I think as a group have held up better than would be expected," Thompson said on CNBC. "What's really interesting is that the numbers keep coming down for that sector and they continue to be somewhat stalwart."
Analysts have adjusted their expectations to reflect a sector teetering on the brink, he added.
"We're at a point where if earnings can tell you anything about what's going on in the big picture, it's that we're sort of walking on this very fine line where we're either going to be knocked off and fall down a cliff, or we're going to stabilize and go up from here," Thompson said.
"You continue to see this pervasive downward revision of expectations," he added, "but that being said, the market tends to then correct itself and get in line with the reduced expectation earnings."
Among the largest in the sector to get hit by the subprime collapse were Citigroup, Merrill Lynch and Bear Stearns, which was bailed out by JPMorgan.