Most large banks beat first-quarter earnings forecasts, but investor concern over lower revenue is preventing a bounce in financial exchange traded funds (ETFs).

Net revenue at the six largest U.S. banks fell 13.3% in the first quarter from the year-ago period, Bloomberg reported. The half-dozen banks are Bank of America (NYSE: BAC), J.P. Morgan (NYSE: JPM), Citigroup (NYSE: C), Wells Fargo (NYSE: WFC), Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS).

Financial ETFs such as Financial Select Sector SPDR Fund (NYSEArca: XLF) are trailing the S&P 500 by a wide margin in 2011. [Financial ETFs are Worst-Performing U.S. Sector in 2011.]

In the first quarter, 16 of 17 banks beat estimates but upside was driven by improving credit, which was already priced into bank stocks, said Deutsche Bank analysts led by Matt O’Connor in an April 25 research note.

“More importantly, revenue remains sluggish from regulatory drags, weak loan growth and the prolonged low rate environment,” the analysts wrote.

Financial Select Sector SPDR Fund

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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