This 230-basis-point decline is a big reason why JPMs net income was off by $1.3 billion in the first quarter.
Wells Fargo doesn’t break this information out.
Analysts expect fixed-income trading to be down for most Wall Street firms in Q1, and that’s definitely not good for JPM stock … or anyone else dealing in that segment, really.
A Few … Special Circumstances for WFC
While it’s true that Wells Fargo increased its net income in the first quarter while JPM did not, it’s also true that WFC’s bottom line was helped by several factors that likely aren’t repeatable:
- Wells Fargo booked $734 million in additional gains from equity investments in the quarter — a 650% increase year-over-year. The likelihood of that happening in Q1 2015 is remote at best.
- Due to the layoffs mentioned earlier, WFC saved more than $200 million in employee benefits, which goes straight to the bottom line.
- Finally, Wells Fargo reduced its provision for credit losses in the quarter by 73%, or $843 million.
In these three items, you’re talking roughly $1.8 billion in additional revenue. Without these, it’s certainly enough to change a bad report into a good one.
JPMorgan earnings in Q1 were nothing to write home about, but the same can be said for WFC. It’s likely that all of the big banks will deliver spotty earnings.
Long-term, I don’t think it’s anything to worry about. In fact, if you own JPM stock, I’d certainly consider investing some more should it drift down into the low $50s.
As for WFC, it’s up 30% over the past year through April 10 — significantly higher than either JPM stock or its banking peers. Once investors realize its earnings were also mediocre, I see its stock cooling off for a stretch.
At this juncture, I wouldn’t be too gung-ho about any of the big banks. But at the very least, I wouldn’t worry about JPM.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.