Earnings season unofficially began earlier this week with Alcoa's (AA) earnings beat on Tuesday after the bell (the stock has been down since then). However, it is the earnings this morning that many have had their eyes on all week. The first group of the big financial institutions report earnings this morning, with JPMorgan (JPM) and Wells Fargo (WFC) issuing results.
JPMorgan reported third quarter earnings this morning that beat the Street's estimates on both the top and bottom line. Since the first quarter, JPM has been mired in extra scrutiny following the "London Whale" debacle (the company took a $449 million loss during the quarter for it), but there were definitely positives to the report. Housing improved (CEO Jamie Dimon feels that housing has turned the corner) as a result of low interest rates which have spurred some home buying and refinancing. The growth in the mortgage business helped to push JPM to a record quarter. The conference call is going on right now, but it appears to be an overall strong quarter. Many highlights can hopefully be extrapolated to other banks; however, Wells Fargo apparently did not see many of the same benefits.
Also before the bell on Friday, Wells Fargo released operational results for its third quarter that, unlike JPM, fell short of expectations this morning. Revenue improved year over year but fell just shy of expectations; earnings beat by a penny. The best highlight that we have seen so far is the growth in the mortgage business. JPM reported a surge in mortgage lending and so did WFC. With a smaller capital-markets business than its big bank peers, Wells Fargo is more closely watched in the investment community for its mortgage banking results. Led by a surge in mortgage growth, with more loans and higher fees, the company was able to see a better mortgage business. Credit-loss provisions totaled $1.59 billion, compared with $1.81 billion a year earlier and $1.8 billion in the second quarter. Net charge-offs, or loans lenders don't think are collectible, were 1.21% of average loans, compared with 1.37% a year earlier an 1.15% in the second quarter.
Shares of JPM have been straddling the breakeven point this morning, vacillating between going green and red, depending on the conference call. While WFC is indicating to open approximately 2% lower this morning. It seems that the Street's trend of "ignoring" bottom line beats holds true again this quarter. It is more important to beat on the top line and show an improving business, than finding more "fat" to cut to allow for a beat on the bottom line.
Disclosure: I am long JPM.