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:
Big Bank Stocks in Trouble: Citigroup (C)
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.
Big Bank Stocks in Trouble: JPMorgan Chase (JPM)
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.
Big Bank Stocks in Trouble: Wells Fargo (WFC)
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.