HAVE THINGS JUST GOTTEN WORSE FOR MAJOR BANKS?

The Q1 2016 for major banks have been rather disappointing in both revenue and net profit.

Here are some of the results:

Deutsche Bank: Revenue 22% down and Net Profit 58% down y-o-y.
JP Morgan: Revenue 3% down and Net profit 7% down y-o-y
Bank of America:Revenue 2% down and Net Profit 18% down y-o-y
Morgan Stanley: Revenue 21% down and net Profit 54% down y-o-y
Wells Fargo: Revenue 4% up while Net Profit 5% down y-o-y
Citi: Revenue 11% down and Net Profit 27% down y-o-y
Goldman Sachs: Revenue 40% down and Net Profit 60% down y-o-y

Despite the fall in Net Profit all the 6 US banks reported EPS beat - mainly due to lower earnings expectations and share buybacks.

This shows that something is very wrong with the way Wall Street set its expectations, lowering the bar to ensure an easy beat in the EPS.

Following the Q1 results, analysts have raised some red flags concerning the financial health of several of the banks. Among them:

Both JP Morgan and Deutsche Bank have financial derivatives that are more than US$50T each. In fact, JP Morgan received a letter from the Fed which voiced its concern on amount of derivatives JP Morgan has outstanding.

Wells Fargo reported a 62% increase (from US$18.5B to US$30.0B) in problematic loans, mainly attributed by the oil and gas related sector.

JP Morgan on the other hand reported that its problematic loans have increased 45%  from US$14.6B to US$21.2B.

As the many of the companies in the oil and gas sector continue to face potential default, it is envisaged that the provision for loss will gradually grow higher among the major banks.

That is why it is best to avoid investing in these banks at this juncture.

US banks aside, the prospects in the EU are far worse. Major Italian banks will continue to face pressure from the high level of NPLs, while Greece's funding will come into question yet again in the summer, made worse by a potential BREXIT, while Deutsche Bank tethers on the brink.

Recent polls have indicated that those "for" BREXIT have taken a lead, no thanks to Obama who subtly warned the British people against moving out of the EU - an unnecessary move that provoked much anger among the people and has now backfired.

This uncertainty will put pressure on the British banks and the Pound. Therefore I am SHORT both RBS and Barclays at the moment.

Still it is important you always do your own research.