Wells, J.P. Morgan results trigger bank selloff
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By Sam Mamudi and Greg Morcroft, MarketWatch
NEW YORK (MarketWatch) — U.S. bank stocks fell on Friday after J.P. Morgan Chase & Co. and Wells Fargo & Co. reported strong headline third-quarter results but disappointed on metrics, sending investors for the exits before more banks report next week.
U.S. week ahead: financials earnings
MarketWatch’s Polya Lesova on what investors can expect as some of the biggest U.S. companies report earnings. Photo: Getty Images
Wells Fargo shares WFC -2.64% dropped 2.6% after the firm reported that its quarterly profit jumped 22%, but revenue and net interest margins at the nation’s fourth-largest bank by assets came in below targets.. See more about Wells Fargo’s earnings.
“Underlying credit quality continued to show improvement in the third quarter, as the overall financial condition of businesses and consumers strengthened, the housing market in many areas of the nation improved, and we continued to work to reduce problem assets and make new, high-quality loans,” said Wells Fargo Chief Risk Officer Mike Loughlin.
Wells’ stock suffered as its 8.1% growth in revenue, to $21.21 billion, came in below analysts’ consensus view of $21.47 billion, according to Thomson Reuters. Per-share earnings, reflecting the payment of preferred dividends, were 88 cents a share, ahead of the expected 87 cents a share.
Analysts at Sandler O’Neill told clients in a Friday note that, “The big story for the quarter was the net interest margin, which compressed 25 basis points to 3.66%. This was worse than management had suggested just a month or so ago (which in and of itself had been disappointing to investors).”
The drop for Wells Fargo’s shares helped drag the financial sector lower, leaving the Financial Select Sector SPDR exchange-traded fund XLF -1.37% down 1.4%.
J.P. Morgan kicks off earnings season
The before-the-bell results from J.P. Morgan kicked off the reporting season for U.S. banks, bringing investors a first look at what’s expected to be a better earnings season than last year’s lackluster quarter, thanks to revenue from mortgage lending and fixed-income capital markets. Read MarketWatch’s live blog of the J.P. Morgan’s earnings call.
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Obstacles continue to abound, including low interest rates and increasing competition for loans.
Profit for J.P. Morgan rose 34% to $5.71 billion, or $1.40 a share, up from $4.26 billion, or $1.02 a share, earned in the year-earlier quarter, as revenue reached $25.86 billion, up 6.1%.
A survey of analysts by FactSet Research produced consensus estimates of $1.21 a share for quarterly profit and $24.42 billion for revenue. Read in full about J.P. Morgan’s third-quarter results.
“At first glance, quarterly results were roughly in line with expectations as mortgage banking results were solid, and commercial growth remained positive. However, soft capital-markets revenues, increased litigation expenses, and lower earnings quality earn negative marks,” Sterne Agee analysts said in a note published following the news.
Shares of J.P. Morgan JPM -1.14% closed the session down 1.1%.
J.P. Morgan said that in mortgage banking, “credit trends continued to modestly improve.” And “we believe the housing market has turned the corner,” said Chief Executive Jamie Dimon in a statement.
In a conference call following the earnings, Dimon said that he expects litigation costs — a roughly $700 million pretax loss in the latest quarter — would remain at high levels for some time.
Next week will see a flood of bank earnings, as Citigroup Inc. C -2.17% reports on Monday, followed on Tuesday by Goldman Sachs Group Inc. GS -1.47% .
On Wednesday, Dow Jones Industrial Average DJIA +0.02% members American Express Co. AXP -0.99% and Bank of America Corp BAC -2.36% report, as will U.S. Bancorp.US 0.00%
On Thursday, Morgan Stanley MS -3.08% and Travelers Cos. TRV -0.64% , another Dow component, will report.
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