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Consumer banks seen taking a hit as interest rates stay low

Potentially good earnings are around the corner for banks, but analysts aren't optimistic long-term.

Not everything is well on Wall Street on an otherwise rocking Monday.

Despite the S&P 500 smashing through a new intraday trading high to start the week — and big banks' shares trading up in an optimistic market Monday morning — analysts are almost universally bearish on those same financial institutions in the longer term.

Their concerns have little to do with earnings announcements coming this month; in fact, some analysts think consumer banks, which are responsible for billions in lending every quarter to home buyers and auto purchasers, could see loan figures rise for the second quarter: "Banks may experience a boost in non-interest income as demand for residential refinance ticks up in the low rate environment," said Bain Rumohr, director of Fitch Ratings.

The problem, he said, is that banks won't thrive as long as interest rates are at historic lows. Greater loan activity "will not be enough to offset pressure from the flattening yield curve."

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Fed fallout could fester on Wall Street. Analysts at Fitch Ratings point out that loans and securities maturing or repricing more than five years from current day represent 30 percent of the total loan and securities portfolios at banks. While consumer and lending banks have rebounded better from their lows this year than the investment banks have, low loan returns are likely to hamper that progress.

It's a strange time for bank investors. Even in spite of the bearish sentiment from analysts, bank stocks are poised on Monday to post a fourth straight day of gains for the first time since April. Many banks shares traded higher, keeping pace with or topping market benchmarks.

Credit Suisse analysts last week dialed back estimates on banks including Bank of America, Wells Fargo and Citigroup, "to reflect the cost of a lower for longer scenario," which they meant to refer to interest rates. None of the banks provided further comment when contacted by CNBC.

The good news is, the problems may not show up immediately.

"While [second-quarter] results should be OK, we believe forward [earnings per share] are at risk from low rates and uncertainty around capital markets," Goldman Sachs analysts wrote in a Monday report.

The analysts went on to say that mortgage revenues could rise as much as 35 percent year-over-year in the second quarter — a short-term boon for lender banks — and that refinancing deals could be on the upswing as well.

"The consumer banks will have a decent quarter" on things like rising credit card and auto loans, said Dick Bove, vice president of equity research for the financial sector with Rafferty Capital.

After that, all bets may be off. While holdout buyers may have been waiting on even lower mortgage rates before they make purchasing decisions, it's not clear how long a greater number of mortgages can shore up banks' top lines without central bank policy makers finally following through on an interest rate increase. Only then would they start making more on lending.

Soon, the market will have an answer on how well banks with big lending and consumer operations fared in the second quarter. Both JPMorgan Chase and Wells Fargo are expected to report earnings later this week.