JPM, Wells Fargo Earnings: What Investors Are Weighing

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JPMorgan  (JPM) - Get Report and Wells Fargo  (WFC) - Get Report both unleashed ugly earnings reports. The market had anticipated this, but investors were too wary of the negative results to keep buying shares. 

After having risen roughly 1% in early trading, JPM and Wells Fargo fell 4.4% and 5.2%, respectively by late morning Tuesday. 

Here were the surface results for JPMorgan:

Revenue: $29 billion, in line with estimates 

Earnings per share: 78 cents v. $1.84 expected 

But JPMorgan had already fallen more than 31% for the year, more than two-fold, in percentage point terms, the S&P 500’s loss for the year. Banks have been squeezed by lower interest rates, partly offset by higher loan volumes. But loan loss provision expense, or the amount of cash set aside to prepare for future expected losses on loans, have weighed considerably on earnings estimates. 

“It’s probably a relief rally for JPM,” Marc Pfeffer, chief investment officer for CLS Investments, told TheStreet. The market "understands that there are provisions being put in and the expectations that their businesses will be on track as the economy begins to get its footing again. I don’t think there was anything in there that was so alarming to take the stock back down to where it was [days ago].” 

But what has the market worried, as the stock sold a bit, was the 22% year-over-year rise in loan loss provisions to over $8 billion. This, for the broader market, signifies poor credit quality for companies, but for JPMorgan, could mean a rough revenue picture in the near-term. Preffer sees the strong revenue from JPM as a data point for investors to take solace in, a data point driven by balance sheet growth, the bank said .

Here were Wells Fargo results:

Revenue: $17 billion v. $19 billion expected

Earnings per share: 1 cent v. 33 cents expected 

For Wells, the stock drop is more convincing, as the miss was large net income fell 90% and loan loss provision expense was $4 billion, roughly five times what it was last year. The stock was down more than 40% coming into earnings, importantly. 

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