With the global debt crisis set to corral investment banking's bull run, it's questionable whether the largest lenders can compensate for a resultant decline in a top source of profits.

Observers say the sharp slowdown in trading and merger activity since May could seriously test JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc., as robust capital-markets earnings over the past year have offset massive consumer and business loan losses.

Now, with the second quarter closing in two weeks, investors and analysts are fretting about whether these banks have a good enough grip on their loan issues to stand tall without the muscular investment banking numbers that have propped up their bottom lines.

"Trading activity has quieted down as, apparently, market players have taken risk off the table," said Michael Block, chief equities strategist with Phoenix Partners Group. "A lot of large banks didn't make a lot of money trading both for themselves and their customers. It stands to reason that source of earnings from [the first quarter] may not be as buoyant."

Market watchers say they have reason to be optimistic — and nervous — about what results large banks will report next month.

On the upside, banks across the industry have been making substantial progress in stanching business and consumer loan losses since the middle of last year. In reporting that its credit-card writeoffs and delinquencies fell in May. JPMorgan Chase, for one, indicated on Tuesday that the trend continued into the second quarter.

"Credit, probably, [will] continue to improve, at least in the second-quarter numbers. I think, generally, margins will be pretty strong," said Gary Townsend, chief executive of Hill-Townsend Capital LLC.

Falling or stabilizing consumer credit losses could enable Bank of America, JPMorgan and Citigroup to continue releasing some of the massive stockpiles of capital they've set aside to absorb loan losses, offsetting softness in their capital-markets operations.

But bankers and investors are nervous for a number of reasons.

The European debt crisis and the volatility it has injected into the debt and equity markets have chilled everything from traders' willingness to buy stocks to corporations' ability to go public or issue bonds.

"Client activity has reduced. Clients are taking risk off," Jes Staley, the head of JPMorgan Chase's investment bank, told Reuters at a conference last week in Vienna. "People are a little more wary, and that may have an impact on" second- quarter results.

Whatever the ultimate impact, observers have been expecting the unpredictable capital markets to fizzle out since a spate of capital-raising and equities-buying activity helped drive banks' bottom lines early last year. And they've been wrong each time. Still, "these things can not continue to earn what they're earning," said Paul Miller, head of research at FBR Capital Markets Corp. "We have always argued that we would expect (large banks) to have less of a reliance going forward" on their capital-markets arms.

Investment bank operations have been critical to the banks' results, generating $8.9 billion of profits last quarter for JPMorgan Chase, Citigroup and Bank of America.

Citigroup reported $3.2 billion in securities and banking profits last quarter; net income for the whole company was $4.4 billion.

JPMorgan Chase's investment bank earned $2.5 billion while the parent earned a total $3.3 billion. Bank of America's global banking and markets segment posted $3.218 billion while the entire company earned $3.182 billion.

Observers do say the banks' investment banking operations could beat expectations again because things were relatively busy through May. Fixed income volume has remained high, even as spreads have widened, thanks to government support of the debt markets.

And the massive amounts of extra cash the banks have poured into government bonds could deliver a nice return, as bond prices have soared in recent weeks, Miller said.

Jeffery Harte, managing director with Sandler O'Neill & Partners LP, said it's unclear whether the pause in the capital markets in the last two months is permanent or temporary. A lot of the factors that set the capital-markets run in motion are still in place, including an abundance of cash on corporate ledgers.

Also, he said, investment banks were unusually busy last year as the recession wiped out a number of players.

There was always bound to be a lull, but he said he is optimistic that the large banks have made enough headway on the loan-quality front to handle it.

"What is going on with capital markets? Is this the start of another bear market?" he said. "The real earnings key to me is credit continuing to improve. A not-as-good capital-markets environment is kind of second place to credit."

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