Last week Goldman Sachs, JP Morgan and Citigroup announced earnings that beat the street’s expectations. All of them except JP Morgan traded down even after delivering better news. Bank of America and Wells Fargo are going to report this week.

Bank America reports today before market. Every investor out there is going to watch what they say about TARP, the stress test and their failed acquisitions. Wells Fargo will announce their earnings on Wednesday before market. Wells Fargo has already guided higher so every one is going to focus on Bank of America. Wall Street is expecting a profit of 4 to 5 cents a share from Bank of America compared to 23 cents a year ago.

Capital One is going to report on Tuesday. Capital One serves the high credit risk customers. We have to see whether their consumer credit quality is still declining. If Capital One gives us some positive surprise, the market will rally.

Apart from the banks, we have other major companies that report earnings this week. Apple Inc is going to report Wednesday after market. Investors have questions about whether iPhone sales are doing ok, effect of competition from Blackberry, Mac Sales, etc., Apple’s stock rallied in the past two weeks. We will know whether this rally is sustainable on Wednesday.

UPS is going to report on Thursday before market. It will give us the state of the shipping business. It will also give us the clue about e-commerce trends.

Once upon a time, everyone was eagerly waiting for earnings results from Yahoo. I don’t think anyone cares about them now. Yahoo reports tomorrow. EBay reports on Wednesday. Microsoft reports on Thursday. These results will give us clues about technology sector.

We have to watch for reports from Ford, which reports on Friday before market, to see the signs of recovery in Detroit. In the oil and energy sectors, Schlumberger reports on Friday before market, Conoco Phillips and Occidental report on Thursday before market. Halliburton reports today before market. These results will give us indications about the health of overall economy.

Keep your fingers crossed before you hit the buy button in your online brokerage account!

Related Link: Earnings Season

I think Ken Lewis is arrogant and overconfident. Hours ago, he refused to reveal the names of Merill employees, that received multi-million dollars bonuses in 2008, to New York Attorney General. Those guys received the hefty bonuses few weeks after Bank of America received $20 billion bailout from Government.

The New York attorney general’s office has subpoenaed Bank of America Corp. seeking the names of Merrill Lynch executives who received $3.6 billion in year-end bonuses, after Chief Executive Ken Lewis didn’t want to give out the names. If this guy is genuine, as he claims, why is he hiding the names? Whom he is trying to protect? Himself?

Related Link: Ken Lewis Keeps Lips Sealed

I warned about banking stocks one month ago.  At that time Citibank was trading at $3 and Bank of America was trading at $5+. I warned that the price could go lower. Bank of America went down to $2.53 before recovering to current $4 level. Citibank went down to $1.61 before coming back to $2+ level. I have never seen banking stocks this volatile in my career.

I don’t really worry about nationalization of these two banks – Citibank and Bank of America. Contrary to public fear, nationalizing these banks for short period of time will do good for the economy. You can also get rid of people that put the country and its economy in great danger. Nationalization is no longer about economy. It’s politics now. Anything can happen in the next few weeks.

If you are a hard core trader, you may want to play bank stocks to use the volatility to your advantage. If you are not, then better stay away fom bank stocks such as Citibank and Bank of America. Things can change suddenly and quickly. If you are not careful, it can wipeout your entire savings.

Disclaimer: I do not own any stock mentioned in this blog post.

Today, Bank of America’s stock is up 13%. Citibank is up 10%. It looks like these stocks are really cheap, isn’t it? Yes, they are. Only problem is that they may go even cheaper.

Analyst firm Friedman, Billings and Ramsey came out with some bearish opinions on the banking sector yesterday. They said that Bank of America might have to raise an additional $80 billion in capital by selling more stock. FBR was also concerned that Wells Fargo will have to drastically reduce its dividend and that it may also need to raise capital by selling more stock. All of this negative news took toll on the banking sector yesterday. It may be a sucker’s rally today, it’s better not to get in there even when the 10% per day return is dangling in front of you.

Here is my problem with the banking sector. These guys are not telling the truth. I doubt whether they even know the full extent of their internal problems. Bank of America at $5+ and Citibank at $3 look very attractive. But, it’s prudent not to get lured by these numbers. Just wait out until the fundamentals improve.

Bank of America proudly announced that it would buy Merrill Lynch for $46 billion in Sep 2008. Today, its market cap is $38 billion.

Bank of America’s CEO Ken Lewis had dreams about buying investment banks and asset management companies. He jumped at the opportunity of buying Merrill Lynch just because of that. He also shot himself in his foot.

Today, it’s clear that Bank of America didn’t do proper due diligence. The bank suffered heavy losses due to the losses in Merrill Lynch. Bank of America knew about these losses after December 5, 2008 shareholder vote to approve the deal to buy Merrill Lynch. But, it didn’t disclose the losses before closing the deal on Jan 1, 2009. Bank’s investors are furious about the lack of transparency.

Bank of America was secretly negotiating with Fed officials for more bailout money because of the mounting losses in Merrill Lynch. Investors are kept in dark for the whole time. Today, Bank of America received emergency capital injection of $20 billion from Fed. There may be more capital injections in the future. I think it’s better to stay away from bank stocks until we know everything about what is really going on with these guys.