Over the past two weeks, I have been predicting that JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Company (NYSE:WFC) would beat their earnings estimates. Turns out my estimate was right because the two banks both posted earnings beats early this morning. Remember that my favorite banks are JPMorgan, Wells Fargo and US Bancorp. These are the elite retail banks that are set to outperform the sector. US Bancorp releases results on April 17th.
Lets start with JPMorgan’s earnings release. The bank said they earnings $5.4 billion in the first quarter, with an EPS of $1.31 a share. Analysts polled were expecting $1.16 a share. Unfortunately, revenue and profit numbers fell for most of JPMorgan’s businesses. That is why the stock is currently trading down this morning. CEO Jamie Dimon commented on the results saying that the real estate bubble has delivered higher costs and a string of legal troubles. However, JP Morgan was able to issue 6% more loans and people applying for loans grew 33%. Another great sign is that the bank was able to reverse the loss in its mortgage business by earning $461 million. Bottom line for JPMorgan, earnings have fallen 3% year over year, however revenue is up 6% year over year.
ValueWalk's Raul Panganiban interviews Kirk Du Plessis, Founder and CEO of Option Alpha, and discuss Option Alpha and his general approach to investing. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with Option Alpha's Kirk Du Plessis
After JPMorgan, lets look at Wells Fargo’s earnings release. Wells Fargo said they earned $21.6 billion in revenue on 75 cents per share. Analysts were looking for revenue of $20.4 billion on EPS of 73 cents. As you can see the analysts were almost right on the money with Wells Fargo. Like JPMorgan, Wells Fargo also saw a huge jump in its mortgage business. Noninterest mortgage income saw a nice 42% bump year over year. Commercial loans were also up 7%, consumer loans were down 1.7%. Once again we hear from management that legal battles with investors who were sold faulty loans is hurting underlying numbers.
As you can see both banks had their good and bad aspects of the earning releases, however most was good news. I have been saying that I am worried about all of these legal settlements involving investors with faulty loans. This is definitely going to hurt the banks in a time when they are vulnerable. Unfortunately, there is not a whole lot that can be done, despite what JPMorgan CEO Jamie Dimon says about it. Bottom line is that mortgages are driving profits along with other forms of lending, which is a good sign. Tune in next Tuesday to see how US Bancorp did with its earnings release.