Citigroup Inc (NYSE:C) maintains its Buy rating on JPMorgan Chase & Co (NYSE:JPM) while retaining its Neutral rating on Wells Fargo & Co (NYSE:WFC), post their third quarter results.

JPMorgan and Wells Fargo

JPM’s solid performance despite enhanced litigation charges

Keith Horowitz and the team at Citi commend the solid performance posted by J.P. Morgan despite providinga substantial amount towards litigation expenses.

Last week, JPMorgan Chase & Co (NYSE:JPM) posted its first quarterly loss after Jamie Dimon took over as CEO. In a surprise announcement, JPMorgan Chase & Co (NYSE:JPM) declared a $380 million loss, entirely the product of $9.2 billion the bank has set aside for settlement costs, which offset what otherwise would have been a good quarter.

Citi analysts point out despite substantial litigation charges, J.P. Morgan’s underlying third quarter results pointed to core EPS (ex charges, reserve release, special gains etc) of $1.48 or roughly a $6 annualized pace.

The analysts commend JPMorgan Chase & Co (NYSE:JPM)’s strong performance in corporate and investment banking besides posting in-line performance at its consumer and business banking division. However, mortgage banking remains the only disappointing area, as the banking major posted below Citi analysts’ estimates thanks to significantly lower gain on sale.

Enthused by JPMorgan Chase & Co (NYSE:JPM)’s solid third quarter performance, Citi analysts raised their target price by $4 to $66 to reflect higher earnings power and slightly lower cost of equity. The analysts maintain their Buy rating as they continue to see very good value in the banking major’s shares.

Wells Fargo faces a tough quarter in mortgage

The nation’s largest mortgage originator reported a 13 percent increase in its third quarter profits, despite facing a big drop-off in home mortgages compared with the prior quarter. Wells Fargo’s results were strengthened by an improvement in credit quality, which enabled a net charge-off of $975 million, down $1.4 billion from the year-ago period.

Keith Horowitz and the team at Citi believe Wells Fargo & Co (NYSE:WFC)’s core results looked especially weak due to a tough quarter in mortgage, where there was significant drop-off in revenues and a lag on rightsizing of expenses.

However, the Citi analysts raised their estimated EPS for 2014 by 5c to $4.10, primarily due to higher reserve release, while lowering the 2015 estimate by 10 cents to $4.35. The analysts don’t anticipate Wells Fargo to report positive operating leverage until the second half of 2014.

Keith Horowitz and team raised Wells Fargo & Co (NYSE:WFC)’s target price by $1 to $46 primarily due to rolling forward their valuation model an additional quarter. The analysts anticipate narrowing the difference between core and reported EPS in 2014 as they anticipate $4.10 in EPS in 2014 with only $0.10 of one timers and reserve release.

The Citi analysts point out limited upside to a 2014 consensus on a core basis and hence maintain a Neutral rating on Wells Fargo & Co (NYSE:WFC).