Analyst: Earnings estimates for banks widen

Uncertainty about the scope and timing of credit losses at banks has led to widely divergent analyst earnings estimates, and recovery in the sector might not occur until 2010, analysts said Monday.

"The dispersion in estimates for large-cap banks is the greatest we can recall ever seeing," Sterne Agee analyst Sean Ryan wrote in a research note. "As a result, 'consensus' estimates really represent nothing of the sort, and are of little more than academic interest in most cases."

Friedman, Billings, Ramsey & Co. analyst Scott Valentin said credit quality will continue to weaken for at least the next six to nine months.

Credit quality will likely continue to worsen in the coming months as broader economic factors, such as rising unemployment and higher fuel and food costs, hurt consumers, Valentin wrote in a research note.

Valentin said that investors are now eyeing 2010 instead of 2009 as the year earnings will begin to climb higher as executives' views of credit deterioration have grown pessimistic in recent months.

However, banks will see some improving trends though during the second quarter, Ryan said. Recent interest rate cuts by the Federal Reserve have improved net interest margins _ the profit margin on lending _ should make lending more profitable for banks.