Two of the largest U.S. financial institutions kicked off third-quarter results for big bank earnings today, giving us a peek at how they fared amid tough times for both firms.
Wells Fargo & Co (NYSE: WFC) is in the midst of slashing headcount in its mortgage unit by some 1,800, and JPMorgan Chase & Co (NYSE: JPM) is tangled up in settlement talks with the U.S. Justice Department.
The short story on the banks' earnings: WFC earnings had to use a lot of "accounting gimmickry" to beat earnings-per-share (EPS) expectations, and JPM earnings show the first quarterly loss since Jamie Dimon came on board (he started in 2004 as chief operating officer, then moved to chief executive officer in 2005).To continue reading click here...
JPMorgan Chase (NYSE: JPM) Earnings: Don't Be Misled by Sagging Banking Sector
As the grim bank earnings roll in over the next couple of weeks, beginning with JPMorgan Chase & Co. (NYSE: JPM) tomorrow (Friday) morning, don't fall into the trap of thinking the financial sector's woes in the last quarter reflect a sinking U.S. economy.
While bank earnings are usually a good barometer for the nation's economy, many of the factors weighing down financials, such as tougher regulations and the Eurozone debt crisis, aren't necessarily a reflection on U.S. economic activity.
In fact, according to the U.S. Federal Reserve's Beige Book report, released Wednesday, the overall economy at the end of last year continued to improve slowly but steadily.
Friday the 13th for the FinancialsAnalysts have been consistently lowering earnings expectations for all the big banks in recent weeks.
"Friday the 13th will live up to its name when it comes to bank earnings," Mike Mayo, an analyst with independent research firm CLSA in New York, told Bloomberg News. "You're going to see all sorts of revenue and margin pressure and the results will be underwhelming."
The consensus estimate for JPMorgan, the nation's biggest bank by assets and a bellwether for the industry, has slid from $0.97 per share to $0.94 per share in the past month; three months ago the estimate was $1.11 per share.
That puts JPMorgan's earnings below the $1.02 per share of the previous quarter and well below the $1.13 of the year-ago quarter. JPMorgan's revenue is expected to drop 20.8% from first-quarter 2011.
And as disappointing as that sounds, JP Morgan will be one of the strongest performers this bleak bank earnings season, which follows a year in which some bank stocks fell more than 40%.
As the other major U.S. banks report earnings next week - Citigroup Inc. (NYSE: C) and Wells Fargo & Company (NYSE: WFC) on Tuesday, Goldman Sachs Group Inc. (NYSE: GS) on Wednesday and Bank of America Corp. (NYSE: BAC) and Morgan Stanley (NYSE: MS) on Thursday -- the din of negativity will be hard to ignore.
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Avoid Financials: Bank Earnings Are Set to Slide
Flat or falling revenue will plague major bank earnings as second-quarter results are reported this week - delivering yet another blow to battered financial stocks.
Most of the big banks are expected to report a profit, but a falloff in equity trading volume, weak demand for loans, and costly legal headaches all ate into revenue, which will be a prime concern for already-skeptical investors.
All of the big bank stocks are down since the beginning of the year, several more than 20%.
"To say the least, it has been a challenging quarter for the universal banks, as concerns over a disappointing spring housing market, slowdown in the global economy and concerns over counterparty risk to European banks have all worked in concert to cause underperformance," Keefe, Bruyette & Woods analysts wrote in a note to clients.
JPMorgan Chase & Co. (NYSE: JPM) kicks off two weeks of big bank earnings later today (Thursday) followed by Citigroup Inc. (NYSE: C) tomorrow (Friday). Wells Fargo & Co. (NYSE: WFC), Bank of America Corp. (NYSE: BAC) and Goldman Sachs Group Inc. (NYSE: GS) are all slated to report Tuesday, with Morgan Stanley (NYSE: MS) expected next Thursday.
Analysts are expecting an average drop in big bank revenue of between 6% and 8%.
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