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Friday Earnings Roundup: Big Banks Open in Style

Posted
10/12/2012 4:18:00 PM
By: Wyatt Investment Research
Referenced Stocks:BAC;C;GS;JPM;WFC

JPMorgan Chase ( JPM ) and Wells Fargo ( WFC ) kicked off big bank earnings season today. Their third-quarter performances bode well for the remaining financials.

JPMorgan managed to beat Wall Street estimates in large part because it limited damage from the so-dubbed " London Whale " derivatives trader. Earnings rose 34% year-over-year, with a profit of $1.40 a share. Analysts were expecting $1.24 per share.

Wells Fargo's earnings, meanwhile, jumped 22%, while revenues were up 8% from a year earlier.

With profits up significantly at both banks, why then did the two stocks slide today?

JPMorgan shares were down just over 1% despite their surprisingly strong earnings. Well Fargo shares performed even worse, shedding 2.7%.

A closer look at both banks' earnings reports may reveal the answer.

Wells Fargo's third-quarter shortcomings were more glaring. Mortgage-banking revenue and profit margin were both less than expected. Also, revenue was down a tad from the previous quarter.

JPMorgan's third-quarter flaws were less obvious. Profits in its investment-banking wing declined 4% from a year ago and 18% from the second quarter, including another $449 million in losses stemming from the infamous London Whale derivatives trader.  

However, considering the total losses from those wayward trades have totaled more than $6 billion, $449 million is chump change.

Even with both stocks falling, the improved financial performance from JPMorgan and Wells Fargo has to be an encouraging sign for investors in the other big banks.

Citigroup ( C ), Goldman Sachs ( GS ), Bank of America ( BAC ) and Morgan Stanley (MS) all report earnings next week.