Bank of America Corp., the nation's largest bank by assets, reports its third-quarter results before the market opens Tuesday.
WHAT TO WATCH FOR: Shrinking revenue, dwindling loan losses. Until nervous consumers and businesses are willing to take chances and spend more, banks will continue to see their revenues decline.
However, trends from monthly credit card data point to an improvement in delinquencies and defaults. That will help BofA's income.
What investors are most worried over now is how much the ongoing foreclosure crisis will cost BofA, and they'll be looking for answers from CEO Brian Moynihan. The bank has stopped foreclosures in all 50 states over questions on the accuracy of documents used in the foreclosure process.
Investors are concerned about how many mortgages the banks will be forced to repurchase because of faulty paperwork, and also the potential for legal costs to escalate.
Erik Oja, an analyst at Standard & Poor's, lowered his ratings on BofA shares last week. "We have a lower level of confidence that (BofA) has adequately prepared for the potential administrative and legal costs of the rising foreclosure crisis," said Oja, who lowered the target price for BofA shares by $3 to $14.
WHY IT MATTERS: BofA is the largest U.S. bank and its results reflect the health of the American consumer. The company, based in Charlotte, N.C., has faced waves of loan defaults as customers fell behind and investments soured in the last couple of years. Now investors will look for signs that the bank and the American economy are healing.
BofA had income of $2.8 billion applicable to common shareholders in the second quarter of the year as loan losses declined.
BofA's business relationships extend to about 59 million customers, including individual consumers and businesses. That breadth makes BofA particularly vulnerable to high unemployment, which currently sits at 9.6 percent.
WHAT'S EXPECTED: Analysts polled by Thomson Reuters expect BofA to post second-quarter earnings of 16 cents per share.
LAST YEAR'S QUARTER: In the third quarter of 2009, BofA reported a loss of $2.2 billion applicable to common shareholders, or 26 cents per share.