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Bank of America Pushes Higher Ahead of Earnings

NEW YORK ( TheStreet) -- Bank of America (BAC - Get Report) was the winner among major U.S. banks on Tuesday, with shares rising 2.1% to close at $16.72.

The Dow Jones Industrial Average (^DJI) rose 0.7%, while the S&P 500 (^GSPC) was up 1.1% and the NASDAQ Composite (^IXIC) added 1.7%, after the Census Bureau said total U.S. retail sales during December rose 0.2% from November, while rising 4.1% from a year earlier, on a seasonally adjusted basis.  The December figure came in ahead of the consensus estimate of a 0.1% increase, among economists polled by Reuters, but the month-to-month pace of growth slowed from an upwardly revised 0.7% in November.

Excluding auto and parts sales, retail sales increased at a pace of 0.7% during December, significantly ahead of the 0.4% expected by economists.  These sales were 3.7% higher than in 2012.

"Any way you slice it, headline sales, headline sales ex autos or headline sales ex autos and gasoline rose just 0.4-0.5% on average throughout the final quarter of the year compared to a 0.2-0.4% pace in Q3, hardly the gangbuster level anticipated to keep upward momentum in GDP from third quarter's impressive pace. A loss of momentum in consumer spending, coupled with a reduction in inventory is likely to translate into sub-2% GDP at the end of 2013 schedule to be released January 30," wrote Sterne Agee chief economist Lindsey Piegza on Tuesday in a note to clients..

This sort of "bad news" is good news for the broad market when the economy is growing and short-term interest rates are close to zero.  As a group, investors prefer to see the Federal Reserve keep the short-term federal funds rate in its current range of zero to 0.25% as long as possible.

The KBW Bank Index (I:BKX) on Tuesday rose 0.5% to 70.20 with all but three of the 24 index components ending higher.

Bank Earnings Begin

JPMorgan Chase (JPM - Get Report) kicked off earnings season by reporting fourth-quarter earnings of $5.3 billion, or $1.30 a share, slightly below the consensus EPS estimate of $1.35, among analysts polled by Thomson Reuters

While the results were disappointing in some respects, JPMorgan reported a respectable return on tangible common equity (ROTCE) of 14%, down from 15% a year earlier.  Most of the legal settlements the company entered into during the fourth quarter -- including $17.5 billion in residential mortgage-backed securities settlements with government authorities an investors -- had previously been reserved for.  But the fourth-quarter after-tax results, as previously announced, were lowered by lowered by $850 million, as a result of the bank's $2.6 billion settlement with the Department of Justice and regulators over its role in the Bernard Madoff Ponzi Scheme.

JPMorgan's shares were up a nickel to close at $57.76.

Please see TheStreet's earnings coverage for much more on JPM's fourth-quarter results and the company's outlook for 2014.

Wells Fargo (WFC)  reported fourth-quarter earnings of $5.6 billion, or a dollar a share, beating the consensus EPS estimate of 98 cents and rising from 99 cents the previous quarter and 91 cents a year earlier.  The company's earnings for all of 2014 totaled a record $21.9 billion, or $3.89 a share, making Wells Fargo the nation's most profitable bank.

Wells Fargo's full-year earnings were up 16%, as declining credit costs and lower expenses more than offset a large decline in mortgage banking income and a slight decline in net interest income.

Wells Fargo's shares were unchanged at $45.56.

In light of the significant rise in long-term interest rates during 2013, which lead to a great curtailment of the wave of mortgage refinance application, the Mortgage Bankers Association on Tuesday lowered its forecast for 2014 one-to-four family mortgage loan originations by $57 billion to $1.2 trillion.  To put that full-year forecast into perspective, the MBA estimates mortgage loan originations totaled $1.755 trillion during 2013, declining from $2.044 trillion during 2012.

Next: Bank of America

Bank of America will announce its fourth-quarter results early Wednesday, with analysts estimating earnings of 27 cents a share, down from 28 cents the previous quarter and 29 cents a year earlier.

Please see TheStreet's earnings preview for more on what to from Bank of America, including the company's massive cost-cutting program.

This chart shows the performance of JPMorgan Chase, Wells Fargo and Bank of America against the KBW Bank Index and the S&P 500 since the end of 2011: 

JPM Chart data by YCharts


-- Written by Philip van Doorn in Jupiter, Fla.



>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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