The fourth quarter earnings are out and it's been a rough ride for the too-big-to-fails.
So far every earning report includes heaping more provisions of capital for bad investments made years ago, or even sooner, to cover legal costs and settlements.
So about the next four quarters? What will 2014 look like?
HousingWire asked bank analyst Christopher Whalen, a managing director at Carrington Holding Company, his thoughts.
Here he tells us four big truths that the big banks, and even big non-bank financial institutions, wish they could avoid in 2014.
Truth #1: More crippling legal fees
"For commercial banks, 2014 is likely to look a lot like 2013. Revenue will be flat to down and earnings will continue to be constrained.
"Lending volumes in heretofore crucial revenue producing segments like residential mortgages will continue to fall, but areas such as commercial lending, credit cards and autos will provide some upward growth.
"The largest banks will continue to address legacy legal and regulatory issues left over from the subprime bust, but 2014 may finally see the end of this process for many institutions. One key decision point to watch will be the resolution of the Countrywide-Bank America litigation now pending in New York state court."
Truth #2: More mortgage-related layoffs
"In terms of operations, commercial banks will continue to shedding staff in areas like mortgage lending servicing and principal trading as institutions work to re-balance their personnel and facilities needs to the new realities of the post-Dodd Frank regulatory world.
"In the absence of top line growth, cost cutting will remain the top priority for most institutions.
"The intense focus from regulators on reducing regulatory and reputational risk at the largest banks will mean that transfers of distressed assets and even performing loans outside of the 'qualified mortgage' definition will accelerate in 2014."
Truth #3: Restructure to survive
"For non-banks, restructuring operations to fit the business opportunities of the future will remain a major theme. Many non-banks will be forced to cut staffing in areas such as distressed servicing.
"Another area where volumes may likely flatten is REO rentals as the recovery of home prices consolidates and appreciation of home prices slows markedly in 2014.
"The end of Q2 2013 was probably the peak of home prices appreciation in the US, but some hot markets continue to pull the major indices such as Case-Shiller higher.
"A number of public firms focused on 1-4 family rentals will likely start to display operational distress as the inherent lack of profitability in these models becomes apparent to investors."
Truth #4: Scalability = Opportunity
"Business opportunities in the mortgage lending and asset management sectors, however, will allow the more integrated operations to continue to grow revenue.
"Loan servicing firms that have been blessed by the major regulatory agencies to take transfers of both distressed and performing loans will grow and necessarily add staff and facilities.
"New opportunities coming from the public sector in terms of REO and distressed loan transfers will also provide new revenue opportunities, but again only for those firms fortunate enough to meet the increased operational and compliance requirements for such business set by regulators."
