(Updated with final stock closing prices throughout, added news on CIT Group talks.) Financial stocks rallied strong Wednesday, with JPMorgan Chase ( JPM) among the winners ahead of its quarterly earnings release on reports the bank has taken a tougher stance with the government. Since repaying $25 billion in funds borrowed under the Troubled Asset Relief Program, or TARP, JPMorgan has taken a tougher stand against the government, according to a report Wednesday in The Wall Street Journal. JPMorgan has stepped up its opposition to the government's proposed legislation on derivatives and has told the Treasury Department it is fed up with haggling over the value of warrants that the government holds in the bank, according to the report. JPMorgan CEO Jamie Dimon is taking issue with portions of the White House's financial plan that deals with the regulation of derivatives, the Journal reported.
In a research note Wednesday, Rochdale Securities analyst Dick Bove said JPMorgan's push against the government's regulation plans is "very important for this bank and the industry." "The rules being proposed would cripple the American banking system and turn the country into a third-rate financial power," Bove wrote. "It is time for a credible spokesperson to point out how very bad these proposals are. Mr. Dimon may be the only banker in the nation able to do this...This is critically important for
JPMorgan , banking, and the U.S financial system." Bove also said JPMorgan, which reports quarterly results ahead of Thursday's opening bell, may very well beat Wall Street's expectations, as Goldman Sachs ( GS) did Tuesday. However, Bove opted not to change his earnings estimates for the bank as the report is less than a day away.
JPMorgan, which analysts on average expect to post second-quarter earnings of 4 cents a share on revenue of $25.9 billion, finished higher by $1.56, or 4.5%, at $36.26. Bank of America ( BAC) and Citigroup ( C), which report quarterly results Friday, rose 4% and 8.6%, respectively. In a separate note, Bove said that
Goldman Sachs' report Tuesday showed clearly that the "positives in the quarter, notably underwriting and trading, far outweighed the negatives." Bove raised his 2009 profit estimate for the bank to $17.51 a share from $14.95, the 2010 estimate to $19.84 a share from $17.43, and the 2011 estimate to $20.84 a share from $17.99. "The critical question in analyzing this company is what is sustainable, what is likely to recover, and what is likely to decline," Bove wrote. "The third quarter will not be a good test of what works and what does not because it is a seasonally weak period. However, by the fourth quarter, the company may be in a new sustainable uptrend." Meanwhile, Keefe, Bruyette, and Woods upgraded Goldman shares to outperform from market perform. While KBW conceded that Goldman's second-quarter trading results are not likely sustainable, the firm said the stock is inexpensive given its return-on-equity forecast. KBW increased its 2009, 2010, and 2011 per-share estimates for Goldman to $16.31, $16.90, and $19.00 from $13.92, $15.10, and $16.60, respectively. Additionally, FBR Capital Markets raised its price target for Goldman shares to $175 from $160. The stock added $5.60, or 3.7%, to $155.26. Goldman shares are now more than 9% higher this week.
In addition to its stock price update for Goldman, FBR Capital Markets initiated coverage of Credit Suisse ( GS) and UBS ( UBS) with a market perform rating. The firm also initiated coverage of Deutsche Bank ( DB) shares with an outperform rating. Credit Suisse climbed 4.7% to close at $47.45, UBS rose 5.8% to $13.23, and Deutsche Bank was higher by 5.5% to $68.47. In other analyst moves, Stern Agee initiated coverage of Discover Financial ( DFS) shares with a buy rating and a stock price target of $13. The stock gained 6.2% to end the day at $10.85. Elsewhere, CIT Group ( CIT) could receive a temporary government loan from the Treasury Department and Federal Reserve to allow the lender breathing room to strengthen its balance sheet, Reuters reported early Tuesday, citing a source familiar with regulators' thinking. Later in Wednesday's session, shares were halted after Reuters reported that the government was exploring aid for CIT Group, but warned that discussions could still end in bankruptcy filing, according to source familiar with talks. A resolution is expected within 24 hours, according to the report.