Big Banks: Earnings Season Losers

NEW YORK ( TheStreet) -- While the broad indexes recovered on the strength of technology stocks, most of the largest financial names were off significantly at Thursday's market close, after JPMorgan Chase ( JPM) began the industry's earnings season by reporting third-quarter earnings of $4.26 billion, or $1.02 a share.

JPMorgan beat the consensus earnings estimate of 91 cents among analysts polled by Thomson Reuters, however, the results included a one-time accounting gain of $1.9 billion, or 29 cents per share, from the decline in the value of its own debt. Shares declined 5% to close at $31.60.

During the company's earnings conference call, CEO James Dimon said that diminished profitability in light of the Durbin Amendment and other regulations limiting fee income, was forcing the company to reconsider its branch expansion plans, after opening 250 branches this year. "We indicated we might do more. It's possible we won't now, Dimon said."

Dimon also offered an apology over the timing of JPMorgan's $4.4 billion in common stock repurchases.

Commerce Bancshares ( CBSH) saw its stock drop 4% to close at $3709, after the company missed third-quarter earnings estimates and reported a sharp decline in its net interest margin, while warning of a significant decline in fourth-quarter fee income as a result of the Federal Reserve's new rules that went into effect on October 1, limiting the interchange fees charged to merchants to process debit card purchases as required by the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law by President Obama last July.

Morgan Keegan analyst Ebrahim H. Poonawala later reiterated his "Outperform" rating for Commerce Bancshares, while maintaining his price target of $46 and saying that "Commerce is not a one trick pony and management has multiple levers to drive earnings and tangible book value growth despite a challenged operating outlook for the sector." Poonawala added that the bank had "consistently delivered above peer average returns over the last several quarters (and over the last decade)," and said he expected "this outperformance to continue."

The KBW Bank Index ( I:BKX) was down 3% for the session to close at 37.78, with all 24 index components showing declines, except for First Niagara Financial Group, which rose slightly to close at $9.57.

The disappointment over U.S. bank earnings outweighed good news out of Europe, after Slovakia approved changes to the European Financial Stability Facility, to increase its lending power to ¿440 billion ($604 billion) from ¿250 billion. Slovakia was the last of the 17 eurozone member countries to approve the expansion of the stability facility.

On Wednesday, the European Commission said banks should first try to raise more capital from financial markets before approaching national governments and that the EFSF should be used to recapitalize banks as a last resort.

Large U.S. banks seeing early 5% declines included Bank of America ( BAC), which closed at 6.22, and Citigroup ( C), closing at $27.64.

Big banks seeing 4% declines included Capital One, closing at $41.8; Regions Financial ( RF), at $3.68; and Morgan Stanley ( MS), which closed at $15.14.

After the market close, Fitch Ratings announced that it had placed its Viability Ratings on Ratings Watch Negative for seven banks, including:
  • Barclays Bank PLC (BDS)
  • BNP Paribas SA (BNP)
  • Credit Suisse AG (CS)
  • Deutsche Bank AG (DB)
  • Goldman Sachs (GS)
  • Morgan Stanley
  • Société Générale

Fitch said that "any downgrades of these banks' VRs would in most cases be one notch and at maximum two notches."


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

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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 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.