Banks Roughed Up Again on Shutdown Day 8: Financial Losers

NEW YORK ( TheStreet) -- Bank of New York Mellon ( BK) was the loser among the nation's largest banks on Tuesday, with shares declining more than 2% to close at $29.67.

The broad market took a beating, with the Dow Jones Industrial Average down 1.1%, the S&P 500 ( SPX.X) declining 1.2% and the NASDAQ Composite declining 2.0%.

Banks took their share of the pounding, with the KBW Bank Index ( I:BKX) pulling back 1.1% to 61.20, with all but two of the index components ending with declines.

JPMorgan Chase ( JPM) and Wells Fargo ( WFC) will lead off third-quarter earnings reports for large-cap banks early on Friday.

Analysts polled by Thomson Reuters estimate JPMorgan will report third-quarter net income of $4.794 billion, or $1.21 per share. In comparison, the bank earned $1.60 a share during the second quarter and $1.40 a share during the third quarter of 2012. JPMorgan's revenue is expected to decline to $24.059 billion during the third quarter from $25.958 billion the previous quarter and $25.863 billion a year earlier.

Wells Fargo is expected to announce third-quarter net income of $5.211 billion, or 97 cents share, compared to 98 cents the previous quarter and 88 cents a year earlier. The consensus third-quarter revenue estimate is $20.993 billion, declining from $21.378 billion in the second quarter and $21.213 billion in the third quarter of 2012.

For more on what to expect for the largest U.S. banks, please see TheStreet's Big 4 Bank Earnings: The Gift of Low Expectations.

Shares of JPMorgan Chase on Monday declined by 1.9% to close at $51.01, while Wells Fargo was down 0.7% to close at $40.3. Rounding out the "big four," Bank of America ( BAC) was down 0.4% to close at $13.76, and Citigroup ( C) pulled back 0.8%, closing at $47.81.

For a roundup on what to expect from the 10 largest U.S. regional banks, please see TheStreet's Regional Bank Stocks Rise Despite EPS Projections.

Rather than focusing as usual on coming earnings reports, investors remain fixated on the federal government's partial shutdown, and more importantly on the prospect of a default on debt payments by the U.S. government if the federal debt limit of $16.7 trillion isn't raised soon.

U.S. Treasury Secretary Jack Lew in a letter to House Speaker John Boehner (R., Ohio) on Sept. 28 said the "extraordinary measures" the Treasury was taking to maintain its borrowing power will "be exhausted no later than Oct. 17," unless the $16.7 trillion federal debt limit is raised.

Some analysts think the government has a bit more wiggle room than that, assuming the Republican-led House of Representatives and the Democrat-led Senate fail to come to an agreement by the date given by Lew.

In Deutsche Bank's morning market research note on Tuesday, the firm's analyst team wrote "We believe the Treasury can fund the government until the end of the month, up to October 31."

President Obama in remarks at the White House Tuesday said he was "happy to talk" with House Republicans over the political parties' disagreements on the federal budget, but added that "having such a conversation, talks, negotiations, shouldn't require hanging the threats of an economic shutdown or economic chaos over the heads of the American people," according to

In other words, Obama continues to require Congress to raise the federal debt limit before he negotiates any spending cuts.

Bank of New York Mellon

Shares of Bank of New York Mellon have returned 17% this year. The shares trade for 11.7 times the consensus 2014 EPS estimate of $2.54. The consensus 2013 EPS estimate is $2.29.

The company is scheduled to announce its third-quarter results on Oct. 16, with analysts on average estimating net income of $673 million, or 58 cents a share, declining from $818 million, or 71 cents a share, the previous quarter, and $720 million, or 61 cents a share, a year earlier.

Analysts expect a significant decline in trading revenue for large-cap banks, as investors were shy during the months leading up to the Federal Open Market Committee's meeting in September, when the committee left the Federal Reserve's "QE3" policy unchanged, with monthly long-term bond purchases of $85 billion.

In his third-quarter earnings preview for trust banks, Jefferies analyst Ken Usdin on Oct. 3 wrote "There is little chance of offsetting the weaker revenues with cost controls given several expense headwinds: the annual merit increase, a rebound in the "other" line and less help from the efficiency plan."

Usdin rates Bank of New York Mellon a "hold," with a $34 price target.

BK Chart BK data by YCharts

Interested in more on Bank of New York Mellon? See TheStreet Ratings' report card for this stock.

RELATED STORIES:







-- 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.

More from Investing

12 Stocks That Make Up the GLUM Index

12 Stocks That Make Up the GLUM Index

REPLAY: Jim Cramer on Tariff Worries, Oil, Alphabet and Centene

REPLAY: Jim Cramer on Tariff Worries, Oil, Alphabet and Centene

Worth a Stunning $6.6 Trillion, Tech Stocks Have Taken Over the Market

Worth a Stunning $6.6 Trillion, Tech Stocks Have Taken Over the Market

Video: Athens Stock Exchange CEO on What's Next for Greece's Debt Woes

Video: Athens Stock Exchange CEO on What's Next for Greece's Debt Woes

Here's Why Snap Shares Climbed Monday

Here's Why Snap Shares Climbed Monday