(By Mani) Banking giants J.P. Morgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co. (NYSE:WFC) are expected to report higher earnings when they announce their third quarter numbers this Friday.
Wall Street expects earnings of $1.22 a share for J.P.Morgan and 87 cents a share for Wells Fargo, according to analysts polled by Thomson Reuters.
Both J.P. Morgan and Wells Fargo have a decent earnings history in the preceding four quarters. J.P. Morgan managed to beat consensus estimates thrice in the past four quarters, while reporting in-line profit for the fourth quarter of 2011.
On the other hand, Wells Fargo earnings topped the Street view three of the preceding four quarters, with earnings coming in below estimates for the third quarter of 2011.
In the past 90 days, the consensus earnings view for J.P. Morgan increased 16 cents to the current $1.22 a share, while Wells Fargo earnings estimate advanced by 3 cents to 87 cents.
On the revenue front, the Street is projecting J.P. Morgan sales to increase 0.7 percent to $24.55 billion, while Wells Fargo's sales are estimated to grow 9.3 percent to $21.46 billion.
For the second quarter, J.P. Morgan's results were hit by a hefty $4.4 billion trading loss at its chief investment office. Quarterly profit declined to $4.96 billion or $1.21 per share from $5.43 billion or $1.27 reported last year. Total net revenues, on a reported basis, dropped 17 percent to $22.18 billion. On a managed basis, net revenue was $22.89 billion, lower than $27.41 billion in the previous year.
Wells Fargo' second quarter profit rose 18 percent, driven by higher mortgage banking revenue and improved credit quality. Net income for the second quarter was $4.40 billion or 82 cents per share, up from $3.73 billion or 70 cents per share in the year-ago period. Total quarterly revenue grew 4 percent to $21.29 billion from $20.39 billion a year ago.
In the case of J.. PMorgan, EPS expectations may be too high, capital deployment may disappoint, while regulatory/legal matters remain uncertain. For Wells Fargo, barring strong mortgage, trends might be a bit sluggish given pressure on the net interest margin (NIM). In addition, results may also be weighed down by little balance sheet growth, and likely higher than expected expenses.
"For this quarter, we expect JPM to have a slightly stronger quarter in trading than it did last quarter. We are modeling the "special" items to offset any potential hangover from the London Whale incident. We expect another quarter of modest improvement in net charge offs," Oppenheimer analyst Chris Kotowski wrote in a note to clients.
Meanwhile, Wells Fargo mentioned at a recent investment bank conference that the NIM was likely to be weaker this quarter, but deposit growth will help offset some of that and mortgage banking revenue has been very strong and is likely to continue to be so for the back half of the year.
"With WFC, the risk to the downside is always on the expense side, and the company has had to pull back on some of the earlier promises made to get its quarterly expenses in the $11B range. While we are modeling $11.8B for this quarter and $11.5B for next, we realize that is nudging up against the guidance and that if Wells misses, it is the likeliest to be there," Kotowski added..