The word on the street may be that the economy of the United States is recovering, but you wouldn’t know it from the earnings reports released by JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE WFC) this morning, Friday, April 11. Both big banks showed that there’s a long road ahead for the financial sector.
Wells Fargo & Co (NYSE:WFC) showed earnings of $1.05 per share for the first quarter of 2014 on revenue of $20.6 billion. While that bank beat analysts’ expectations of 96 cents per share it saw a decline in year-on-year revenue. JPMorgan Chase &Co. (NYSE:JPM) was similarly afflicted and the trend is weighing on the other big banking houses this morning.
JPMorgan stock falling on earnings miss
JPMorgan Chase & Co. (NYSE:JPM) shares had fallen by almost 3% as of 11:30 AM EST on Friday. The bank showed earnings per share of $1.28 on revenue totaling $22.99 billion. Analysts expected the firm to show earnings of around $1.40 per share in this morning’s report. JPMorgan shareholders are clearly unhappy with the company’s performance, but the same disease afflicted Wells Fargo & Co in the first quarter of the year.
Revenue at Wells Fargo came in at $20.6 billion in the first quarter of 2014. In the same period of 2013 revenue totaled $21.3 billion. The better-than-expected performance attested to by the company’s earnings report came from cost cutting rather than business expansion. Wells Fargo & Co (NYSE:WFC)’s total revenue for 2012 came in at $86.4 billion. This year the number is only expected to hit $84 billion.
JPMorgan Chase & Co. (NYSE:JPM) is in similar trouble. The firm’s revenue has come in below the expectations of analysts for two years running. This morning’s lower than expected revenue was blamed on an 84% year-on-year fall in mortgage revenue and continued difficulties in the bank’s bond trading operation.
US financials are a long way from safety
Despite the pressures from continued low interest rates and reorganization under regulatory scrutiny, some investors are betting big on well-placed banks. Wells Fargo & Co (NYSE:WFC) has been a favorite since the financial crisis. The company’s stock is up by close to 7% since the start of 2014, beating the S&P 500, which is now firmly in the red for 2014.
JPMorgan Chase & Co. (NYSE:JPM) has not been as lucky. The company has lost close to 5% of its value since the year began. The year ahead is set to be a tough one for the company, with interest rates likely to stay at lows and regulatory conflict constantly on the horizon.
That does not mean that there’s smooth sailing ahead for Wells Fargo & Co (NYSE:WFC). The company faces the same difficulties as the rest of the financial industry, though it has a little more room to maneuver given its consumer facing business and its health in the latest round of Federal Reserve stress tests.
Financials have underperformed the S&P 500 across the board since January 1st, and their gains in the last year are below those of the wider index by a significant margin. With interest rates likely to stay at lows going forward investors will be wondering where growth is going to come from. There’s only so much cost a company like Wells Fargo & Co (NYSE:WFC) can cut.