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Big Bank Stocks: Financial Losers

Stocks in this article: BAC JPM WFC I:BKX

Stifel Nicolaus analyst Christopher Mutascio -- who rates JPMorgan a "Hold," estimated that JPMorgan's core operating EPS was "closer to $1.34," when factoring out one-time items. The analyst's third-quarter operating estimate for JPMorgan was $1.38, but excluding "the securities gains embedded in our estimate, our core EPS estimate would have been $1.15," he said," which would be "a better apples-to-apples comparison to the core EPS of $1.34 the company reported in 3Q12," making JPMorgan's operating earnings beat even more solid.

The analyst said that the earnings beat mainly reflected "mortgage banking revenues came in $450 million higher than we anticipated due to strong origination volume ($0.08 per share)," investment banking fees at $260 million higher than his estimate, for five cents a share, and "a slightly lower tax rate than we expected ($0.03 per share)."

In its "Read-Across for Financial Sub-sectors," KBW tied JPMorgan's results into expectations for Bank of America (BAC), which will announce its third-quarter results on Monday.

KBW analyst Frederick Cannon said that based on JPMorgan's "strong quarter of mortgage originations (up 8% QoQ) of $47.3B, while retail channel originations declined 2%... we expect the upside potential to BAC's mortgage numbers to be on the small side at $100-$200M, given that JPM's positive results in 2Q12 did not seem to translate into significant upside to BAC's quarterly results, which we believe is representative of BAC's recent market share declines."

Bank of America will announce its third-quarter results on Oct. 17.

KBW analyst David Konrad rates JPMorgan "Outperform," with a $49 price target, while KBW analyst Jefferson Harralson rates Bank of America "Market Perform," with a $10 price target.

Commenting about mortgage repurchase demands, Cannon said that JPMorgan's mortgage putback "reserve was up from 2Q's $36M number, and while still well below trends of the previous year, it does seem to somewhat contrast last quarter's statement that it was substantially compete with reserving. This increase gives us slight pause as we extrapolate to BAC's likely reserve but we feel that it is more likely that we see BAC's rep and warranty reserve come in below our $400M estimate in the quarter given JPM's low overall reserve level."

JPMorgan's shares declined pulled back over 1% to close at $41.62.

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