When the nation's big banks report their third-quarter earnings in coming weeks, commercial banks are expected to report gains from last year, while investment banks' profits are forecast to fall more than 50 percent, according to analysts who follow the sector.
Among the third quarter themes: continued improvement in consumer credit quality, strong debt underwriting results and a weak trading environment.
With forecasts for continued slow growth in the economy, analyst Meredith Whitney of Meredith Whitney Advisory Group says the story is not a compelling one for investors. She also say bank stocks look boring right now.
"They're not going up that much, they aren't going down that much," Whitney said in an interview on CNBC's Squawk Box. "If you have a great international strategy, that's more exciting, but the U.S. and Europe, which have been 70% of the revenue for the investment banks and brokers, those markets are contracting."
So too is the U.S. market for consumer credit, but given that the quality of loans is improving, that should contribute to year-over-year increases in third quarter profits at the likes of JPMorgan Chase , and Bank of Americaand Citigroup, both of which are forecast to reverse year-ago losses.
In a note to clients, JP Morgan analyst Vivek Juneja wrote two other elements should contribute to what he is expecting to be a stronger third quarter for the banks; strong mortgage banking revenue and higher than expected net interest margin.
The better-than-expected results from the banks mortgage banking operations come in part from a surge in refinancings. Juneja also believes net interest margins should be higher than expected as banks saw healthy deposit growth but kept less of that money in cash and put more in higher yielding securities.
A bigger question mark, however, will be the banks' investment banking operations. Corporate debt underwriting was strong in the third quarter, but this is expected to be offset by weak equity and fixed income trading volumes, both subdued due to concerns about political and economic uncertainty.
And while mergers and acquisitions activity picked up from the second quarter, the overall level of completed deals in the July through September period was weak, Bernstein analyst Brad Hintz wrote in a note to clients last week.
All this will weigh more heavily on the result of Goldman Sachs and Morgan Stanley . Morgan has a big retail presence through its Salomon Smith Barney brokerage joint venture, but both firms are still considered purer play investments banks, and both are forecast to report steep declines in their third quarter earnings from the year ago quarter.
See below for what analysts surveyed by ThomsonONE expect from these companies as of October 5th, 2010.