JPMorgan, Wells Fargo Earnings: Decline In Core Trading

JPMorgan, Wells Fargo Earnings: Decline In Core Trading
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Credit Suisse analysts Moshe Orenbuch and Jill Glaser Shea provide an outlook on JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) earnings, which were reported early this morning.

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This morning, JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) reported 4Q’13 earnings. Overall 4Q results were generally as expected with results reflecting improved credit quality (although slowing), solid IB fees, weaker mortgage banking and relatively flat core expenses.

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Mixed trends in NIM among JPMorgan and Wells Fargo

Mixed trends in the NIM among JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC). JPMorgan’s NIM was up 2bps q/q helped by higher securities yields. However, the NIM declined 12bps q/q at Wells Fargo due to continued balance sheet re-pricing. Average loan growth improved q/q at both JPMorgan (+3% ann) and Wells Fargo (+6% q/q ann.). Better loan growth helped support spread income, up 1% q/q at JPMorgan and Wells Fargo.

Decline in core trading

Core trading declined 13% q/q at JPMorgan Chase & Co. (NYSE:JPM) and down 18% at Wells Fargo & Co (NYSE:WFC). At JPMorgan, core trading was $100mm weaker than our forecast with better FICC offset by weaker equities trading, while trading results at Wells Fargo were in line with our forecast. JPMorgan’s core FICC trading declined 7% q/q and core equities trading declined 30% q/q. While core trading was a bit weaker than our forecasts at JPMorgan, we would note that equities trading was weaker which may be company-specific and not necessarily a good read-through to peers. For IB fees, revenues were up 11% q/q at JPMorgan which came in better than our forecast of a 2% q/q increase. Our IB forecasts for Bank of America Corp (NYSE:BAC) and Citigroup Inc (NYSE:C) are for revenues to increase 15% q/q and 6% q/q, respectively. At JPMorgan, advisory was strong (+35% q/q) as well as equity underwriting (+31% q/q) while debt underwriting was weaker (down 6% q/q).

Mortgage banking activity

Core mortgage revenues declined 55% y/y at JPMorgan Chase & Co. (NYSE:JPM) and down 54% y/y at Wells Fargo & Co (NYSE:WFC) which came in slightly better than our forecasts of a ~58% y/y decline.. Origination volumes came in lower than expected, down 42% q/q at JPMorgan and -38% at Wells Fargo (we were forecasting down 27% q/q). GOS margins were better than our forecasts, up q/q at both Wells Fargo and JPMorgan. Servicing revenues improved and MSR valuations were up 4bps at JPMorgan and 6bps at Wells Fargo. Wells Fargo applications were down 25% q/q.

Credit quality improvement slowdown

NPAs declined 5% q/q and NCO’s declined 1% and a bit slower than our forecasts (estimate a 4% decline in NCOs at large bank peers). Card losses were flat to up at JPMorgan Chase & Co. (NYSE:JPM)/Wells Fargo & Co (NYSE:WFC) versus our peer forecasts which calls for a 21bp decline.

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