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3 Big Bank Stocks That Disappointed on Earnings

Bank stocks are being hit particularly hard at the start of earnings season

The Q2 earnings reporting season kicked off in earnest on Friday as a number of Wall Street titans reported results.

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Overall, expectations for profitability remains high: According to FactSet, factoring in the typical earnings beat rate, analysts have penciled in the second-best quarter of earnings growth since the end of 2011.

Investors pretty much ignored efforts by big bank executives to cool estimates a little, to no avail, by talking up weak trading revenue in recent weeks.

But now, as hard numbers start flowing out, disappointment is in the air. Here are three big bank stocks suffering in response:

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Big Bank Stocks in Trouble: Citigroup (C)

Big Bank Stocks in Trouble: Citigroup (C)

Citigroup Inc (NYSE:C) shares are down 0.5% as I write this, recovering from an opening tick drop that took shares down 2.2%. C reported earnings of $1.28 per share — 7 cents ahead of estimates — on a 2% rise in revenues. That seems good, but it represents a 3% decline from last year as higher revenues were more than offset by a higher cost of credit and increased operating expenses.

The cost of credit, which jumped 22% from last year, was driven by an increase in net credit losses of $94 million. This is classic late-cycle behavior (a rise in non-performing loans and defaults) and could further pressure Citigroup earnings should it continue and force an accumulation of loan loss reserves. The post-recession release of loan loss reverses, as default rates improved, was a massive tailwind for financial sector earnings in recent years.

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Big Bank Stocks in Trouble: JPMorgan Chase (JPM)

Big Bank Stocks in Trouble: JPMorgan Chase (JPM)

JPMorgan Chase & Co. (NYSE:JPM) shares are down 1%, after falling as much as 2.7% at the open, falling out of a three-week topping pattern near resistance from its early March high around $93. A violation of its 20-day moving average near $90 would break a three-month uptrend and set up a test of the late May lows near $82, an 11% decline from here.

The decline in JPM came despite a top- and bottom-line beat: Earnings of $1.82 per share beat estimates by 23 cents on a 4.6% rise in revenues. Core loans increased 8% from the year-ago period. Credit costs declined slightly, thanks in part to a loan loss reserve release. But pressure was seen in the mortgage business, where revenue fell 26% on higher funding costs and lower production margins.

Also, on the post-earnings calls, CEO Jamie Dimon went a bit crazy and roared about how embarrassing it is, as an American, to listen to “this stupid **** we have to deal with” out of Washington D.C with a few audible pounds on the table for effect.

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Big Bank Stocks in Trouble: Wells Fargo (WFC)

Big Bank Stocks in Trouble: Wells Fargo (WFC)

Wells Fargo & Co (NYSE:WFC) shares are down 0.7%, after dropping as much as 2.7% after reporting results at the open. Last quarter, WFC attracted some attention for the poor loan growth trends it reported. This quarter repeated the theme. The company reported earnings of $1.03 per share, 2 cents ahead of estimates, on a 0.2% rise in revenue.

But here are the kickers: Auto loan originations fell 17% from the prior quarter and 45% from last year, mortgage loan originations fell 13% from last year and the mortgage loan pipeline contracted 28% from last year. Watch for a decline to support near the 200-day moving average, a level that has provided support for WFC multiple times since April.

Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.


Article printed from InvestorPlace Media, http://investorplace.com/2017/07/3-big-bank-stocks-that-disappointed-on-earnings-c-jpm-wfc/.

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