NEW YORK (TheStreet) -- If you look at their first-quarter earnings, JPMorgan Chase (JPM - Get Report) appears to have recovered from the 2008 financial crisis, while Bank of America (BAC - Get Report) is still under its shadow.
While JPMorgan Chase beat earnings on Tuesday, Bank of America fell short of analyst estimates when it reported on Wednesday morning. J.P. Morgan saw growth throughout its four core businesses and was also lifted by a spike in trading activity. While BofA reported growth across most business lines and cut costs, its efforts have yet to translate to blowout earnings.
"Bank of America is the anti-J.P. Morgan," said Mike Mayo, a banking analyst with CLSA. "They achieved expense savings, but core earnings lag. This implies lower-than-expected future earnings power."
Bank of America's earnings were 27 cents per share vs. analyst estimates of 29 cents. Quarterly revenue was $21.4 billion, a slight miss from analyst targets of $21.5 billion. The bank reported a profit $3.36 billion, but lower-than-expected trading activity contributed to the earnings miss.
While J.P. Morgan often emphasizes its "fortress balance sheet," which has grown stronger across all lines of its business, BofA appears to be lagging a year or two behind its competitor. Both banks purchased heavily distressed mortgage portfolios during the crisis, but Bank of America still seems to be struggling with the cost of servicing these underperforming assets.
Analysts seeking a clear forward outlook were out of luck during Wednesday's earnings call. However, three themes emerged.
Back to Basics
Financial institutions are making their way through the post-financial crisis era of increased regulation, legal costs, and lingering legacy assets. A widespread response has been to simplify businesses, and "returning to core businesses" is a term often thrown around the Street.
J.P. Morgan, for one, has exited certain business and streamlined its mortgage product offerings. For its part, Bank of America saw a 15.6% decline in its Legacy Asset Servicing line. This business unit was launched in 2010 to manage underperforming mortgages and loans acquired through Bank of America's purchase of Countrywide Financial during the financial crisis.
However, while many of J.P. Morgan's woes appear to be behind it, Bank of America is still fighting some battles. In March, BofA passed the Fed's stress test on the condition that it resubmit its capital plan this fall to address "certain weaknesses." The effort is expected to cost $100 million.
While J.P. Morgan saw an increase in its equity and fixed-income trading activity last month, Bank of America reported that fixed-income trading was down 7% and equity trading was flat.
Analysts were expecting all banks to report higher trading activity. But Bank of America's trading operation is less robust than J.P. Morgan's. CEO Brian Moyinhan cited regulatory constraints that would make it difficult for BofA to engage in the same -- sometimes more volatile -- activities as J.P. Morgan without that trading activity affecting earnings across the whole bank.
After the earnings call, Nancy A. Bush, a banking analyst with NAB Research, said that BofA appears to be erring on the side of caution with regard to its trading activity. As a result of its prudence, BofA is less likely to have dramatically positive results in the next few quarters.
"However," Bush added, "they are more likely to get a bigger pop when rates normalize because of their role with the retail consumer."
Lack of Transparency
When asked to provide its targets for 2015 and 2016, Bank of America demurred but acknowledged that it did not meet its targets for 2014.
Bank of America's hesitancy to provide forward targets suggests the bank isn't optimized.
"Their metrics seems to be all over the map," Mayo said, noting that Bank of America's earnings miss was in spite of cuts in expenses in recent quarters. Also of concern, Mayo said, is BofA's boasting about cost cutting measures while consistently missing targets and not providing clear explanations.
Mayo pointed to how BofA and J.P. Morgan each responded to calls to break up their businesses.
J.P. Morgan dedicated a portion of its investor day presentation in February to outlining and justifying its current structure. Meanwhile, Bank of America is urging shareholders to vote down a proposal in this year's proxy to create a Stockholder Value Committee to eventually divest Bank of America's non-core banking business segments.
It's no shock that Bank of America wants to keep its current structure intact. But Mayo said hewould like to see greater transparency, especially following the financial crisis.