blew past earnings estimates of 70 cents per share in the past quarter with earnings of $1.07 per share. Even backing out one-time charges, the bank earned a solid 87 cents per share.
Financial reform doesn't appear to be a roadblock for the firm, as current analysts predict that the bill, if passed, will only knock 2% off JPM's 2011 revenue. However, in today's conference call, JPM CEO Jamie Dimon said, "Let them estimate whatever they want." Until the financial reform bill is signed, I don't expect to hear an estimate from the bank.
On the conference call, the bank did say that lower overdraft fees will reduce earnings by about $200 million a year, while the financial reform bill could end up raising that number to $700 million, which would translate into about 15 cents per share based on the current shares outstanding.
The mostly positive earnings report wasn't enough to lift the market or financial ETFs today, but that's partially due to the fact that solid earnings from J.P. Morgan come as no surprise. Investors consider J.P. Morgan one of America's strongest of the big banks, if not the top player in the banking arena.
Meanwhile, Bank of America and Citigroup report tomorrow. Analysts predict 22 cents per share from the former and 5 cents per share from the latter. However, these banks are not considered as strong as JPM as evidenced by this morning: JPM was down about 1.3% in early Thursday trading, while both C and BAC were off by more than 3%.
However, less positive investor sentiment makes it easier for these banks to surprise investors on the upside and today's decline leaves financial ETFs positioned for a bounce.
The bank with more potential to influence investor sentiment is Citigroup. It helps that the struggling bank's outlook is quite negative; analysts predict sales have contracted by 26% year over year in the past quarter.
Even if Citigroup misses to the downside, it will require a big negative surprise to crush the stock. On the other hand, with sentiment set against the bank, a small positive surprise could lead to big gains for the stock.
The largest financial ETF,
Financial Select SPDR
has about 25% of its assets in these three big banks, while
iShares Dow Jones U.S. Financial Services
holds 31% in these heavy hitters. In early trading today, both ETFs are down, suffering 1.8% and 1.7%, respectively.
A better option, especially for investors who want to play a sector bounce, are the regional banking ETFs.
SPDR KBW Regional Banking
was down about 2.5% this morning, but several regional banks will deliver their own earnings reports next week. Investors who want to get in ahead of those earnings are getting shares at a discount today.
A well managed mutual fund option is
FBR Small Cap Financial
. Its fee is 1.58% and there is also a 1% fee for investors holding the fund for less than 90 days. However, for investors with a longer time frame, this fund is definitely a good option. Over the past two years, the FBRSX is up 32%, well ahead of the 17.5% loss for KRE.
Keep in mind, if the financial sector receives no bounce from tomorrow's earnings reports, there's still
The investment bank reports Tuesday and its July earnings report was responsible for the July- to-August rally in 2009. Estimates have tumbled, and expectations for GS earnings are similarly low. Only one month ago, analysts predicted more than $4.40 per share in earnings, but those are down to $2.25 as of today. That being said, the company is well run and I expect them to surprise on the upside.
Investors who want to overweight GS should use
iShares Dow Jones U.S. Broker Dealers
, which holds 9.4% in GS, the most of any ETF. This morning, GS was down a mild 0.2% and IAI was leading the financial ETF pack with a loss of about 0.8%.
-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion Money Management was not long any of the equities mentioned.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.