As Canada's Big Banks roll out first-quarter results this week, they will face a skeptical audience that is concerned about the impact of low interest rates, weak oil prices and a slowing domestic economy.
The good news: Expectations are down, giving banks an opportunity for clearing a low bar.
"Most years, having faith in the banks' capacity to pull the levers necessary to generate good earnings growth is precisely the right approach," said Mario Mendonca, an analyst at TD Securities, in a recent note. "This year  does not feel like one of those years."
The stock market is reflecting this sentiment. Bank stocks have lagged Canada's benchmark index in a big way since the start of the year, marking their worst relative underperformance since the financial crisis in 2008.
After hitting a record high in September, the S&P/TSX commercial bank index fell as much as 15 per cent by the end of January.
The banks have recovered some lost ground in February, but are still trailing the benchmark S&P/TSX composite index by nearly 8 percentage points – offering a rare setback for names that gush cash and reward shareholders with hefty dividends.
What explains the setback? The short answer is that earnings growth is expected to slow.
Robert Sedran, an analyst at CIBC World Markets, estimates that earnings in the first quarter – usually a strong one for the banks – will rise just 3 per cent from the first quarter of last year. That's down from 5.5-per-cent earnings growth in the fourth quarter, year-over-year.
Other analysts are making similar forecasts, based on the idea that the banks are facing a number of headwinds right now.
Crude oil prices, which have tumbled more than 50 per cent since the summer, get part of the blame. Although the banks' direct exposure to the Canadian energy sector is small from a loan perspective, the downturn is weighing on investment banking activities as struggling energy firms shy away from initial public offerings and acquisitions.
Sumit Malhotra, an analyst at Bank of Nova Scotia, estimates that domestic underwriting fees for the Big Six banks fell about 40 per cent in the first quarter.
"This clearly has a negative impact on earnings power in the wholesale segment" – or services provided to large, institutional clients – "an important point to consider given that wholesale was the strongest business line for the sector in 2014," Mr. Malhotra said in a note.
If falling oil prices will likely hog a lot of the discussion surrounding bank earnings, falling interest rates will also grab some attention.
The Bank of Canada cut its key rate by a quarter of a percentage point in January over deep concerns about the health of the overall economy. The move has driven down borrowing costs for consumers, but it has also flattened the yield curve – meaning that the difference between long- and short-term rates has narrowed.
Since banks make money by borrowing at short-term rates and lending at long-term rates, the flatter yield curve erodes their profitability. This probably won't be felt much in the first-quarter numbers, but could affect the way the banks see the rest of the year unfolding.
"While the quarter will certainly set the tone and expectations for 2015, we anticipate that the market will likely choose to look beyond the numbers and focus on the banks' commentary and outlook for the year," said John Aiken, an analyst at Barclays Capital, in a note.
He thinks interest rates and their impact on the banks' margins will be a "flashpoint" over the next few quarters. He also recommends paying attention to how the banks see low oil prices affecting economic growth, the housing market and loan growth.
Observers aren't particularly upbeat about what they'll hear. But that's not such a bad thing for stock prices if the banks manage to beat the low expectations.
"We believe the balance of probabilities are tilted slightly in favour of the banks actually delivering better-than-expected results early in 2015," Mr. Mendonca said.