You’ve got to have a really long-term view to love any bank stock now–even one as strong as JPMorgan Chase

The market isn’t going to cut even the strongest banks any slack—or look beyond the current quarter.

That’s the message in the market’s reaction to JPMorgan Chase’s (JPM) third quarter earnings report released before the New York market opened. The bank reported better than expected earnings—on a one-time accounting adjustment–but said revenue grew by just 0.1% from the third quarter of 2010.

As of 2 p.m. New York time JPMorgan Chase shares were down 5.4%.

If you’ve got a perspective of more than a quarter or two the size of that drop is surprising. The bank reported a 30% jump in deposits and said, basically, that it was swimming in liquidity. Not a bad thing to have going for you when most of the world’s banks are scrambling for capital. JPMorgan Chase is clearly, in the long run, one of the world’s strongest banks and it should be able to use that strength to pick up business from competitors.

No one, I’d say, is willing to look that far ahead.

Of course, the current quarter had its share of worries besides the tiny gain in revenue. The bank booked a big $1.9 billion pre-tax gain in the quarter that added 29 cents to the company’s earnings in the period. Taking out that one-time gain—and one-time losses in the private equity unit and for additional litigation expense—wipes out 5 cents per share of the company’s earnings. Instead of beating by a very impressive 8 cents a share, the bank exceeded Wall Street’s earnings projections by a much more modest 3 cents a share.

Which sounds pretty good until you notice that my adjusted earnings of 97 cents a share is a big 23.6% lower than last quarter’s earnings of $1.27 a share.

All the evidence is that the banking business just isn’t growing right now.

For example, JPMorgan Chase showed a 13% drop in investment-banking revenue from the second quarter. And the damage was spread across this unit. Investment banking fees fell 31%. Revenue from fixed income markets fell 14% (after you subtract accounting events). Equity underwriting fees dropped 47%.

And profitability is certainly a question. The bank’s return on equity fell to 9% in the quarter from 10% in the third quarter of 2010 and from 12% in the second quarter of 2011.

Which isn’t to say there wasn’t any good news in the quarter. Read more

Banks down, techs up today equals good news for earnings season that begins next week

Today the U.S. stock market is paying attention to sectors. Technology is up. Financials are down. I think that’s good news for investors are we head into earnings season with Alcoa (AA) kicking off third quarter reports after the close on Tuesday, October 11.

Today, as of 2:30 p.m. New York time the Technology Select Sector SPDR (XLK) is up 1.9%. That performance is a major reason that the technology heavy NASDAQ Composite, up 1.69%, is out performing the Standard & Poor’s 500 and the Dow Jones Industrial Average today.

The Financial Select Sector SPDR (XLF), on the other hand, is headed in the other direction, down 0.2% today.

So why is today’s performance by these two sectors good news? Because it shows that investors might be able to push fear to the side for long enough to pay attention to earnings for the next few weeks. I expect financial stocks to deliver disappointing earnings for the third quarter and for technology stocks to surprise to the upside.

For that to turn into actual movements in stock prices, though, investors have to actually pay attention to the results.

Big banks are looking at hits to earnings coming at them from every direction. Read more

Big U.S. banks are leading the U.S. stock market down today.

The driver here isn’t simply the prospect of slower economic growth represented by the lack of any job growth in August data released today—although that certainly doesn’t help.

Bank stocks are reeling because the big U.S. mortgage lenders and mortgage packagers are reportedly facing a suit be filed next week from the Federal Home Finance Administration, the agency that represents Fannie Mae and Freddie Mac, seeking to force these financial companies to repurchase bad mortgages. The amounts at stake, and it’s extremely hard to put a dollar figure on this suit, could dwarf the $20 billion sought in a suit brought by the nation’s states attorneys general. Fannie Mae and Freddie Mac own about $227 billion of the so-called private label mortgages that are the subject of this suit. (Bank of America probably faces the biggest exposure since it sold the most of these private label mortgages to Fannie Mae and Freddie Mac.)

No surprise then that Bank of America (BAC) was down 8.7% as of 3:30 p.m. New York time, JPMorgan Chase (JPM) 4.7%, Goldman Sachs Group (GS) 5%, Citigroup (C) 5.1%, and Wells Fargo 4.5%.

The suit would be the result of 64 subpoenas issued last year to originators and servicers of mortgage-backed securities. The statute of limitations is due to expire next week so the Federal Home Finance Administration has to file or forever hold its piece.

The subpoenas and the likely suit focus on so-called private label mortgage-backed securities originated by mortgage lenders, packaged by Wall Street investment companies, and then sold to investors. Fannie Mae and Freddie Mac were permitted to buy slices of these securities that carried AAA ratings. As of the end of July, the two companies, now owned by taxpayers, held nearly $78 billion and $149 billion in such securities.

Private label mortgage-backed securities have been among the worst performing mortgage-backed assets, showing the kind of losses nobody expects from AAA-rated securities. The likely suit would allege that the banks in question misrepresented the content of the mortgage pools when they packaged them and sold them to Fannie Mae and Freddie Mac. Testimony in front of the Financial Crisis Inquiry Commission showed that a large percentages of mortgages included in mortgage-backed securities deals had received inadequate due diligence and that the big Wall Street investment companies ignored those problems and packaged them in the mortgage pools anyway.

A suit from the Federal Housing Finance Agency would be a nightmare for the big mortgage banks not just because of the sums involved, but because it would also pretty much blow up all other efforts to put together settlements that would cap bank liabilities. Forget about the proposed settlement with state attorneys—a settlement already in danger. And it would almost certainly bring other investors into court demanding that banks buy back their mortgage paper too.

But the effects don’t stop there. Read more

Really good news from JPMorgan Chase’s (JPM) earnings report this morning—if you’re a global investment bank.

Disappointing news, however, if you’re a U.S. bank looking for loan growth.

Overall second-quarter earnings rose 13% from the second quarter of 2010. Earnings per share of $1.27 were 7 cents a share above the Wall Street estimate. Revenue climbed 6.3% from a year earlier to $27.41 billion. That was above the analyst consensus of $25.26 billion.

As in recent quarters, JPMorgan Chase’s bottom line got a boost from a reduction in reserves against potential losses. For example, the bank saw a reduction of $1 billion in credit card reserves in the quarter as fewer credit card holders were delinquent on their accounts. Offsetting those improvements, however, the bank put away an additional $1.4 billion in reserves against litigation in its mortgage business.

But this quarter JPMorgan Chase also saw some real top line growth in some parts of its business. Revenue at the company’s investment bank climbed 16% and that drove profits in that unit up 49%. Fees from underwriting debt issues climbed 24% and from underwriting equity issues 29%. Revenue from fixed income trading climbed 20% from a year earlier and revenue from equity trading was up 18%. The bank had an extraordinary quarter advising on deals with revenue from advisory fees soaring 69%.

All that’s great news for the world’s big investment banks such as Citigroup (C), Goldman Sachs (GS), Bank of America (BAC) and the like. Citigroup is due to report second-quarter results before the open tomorrow, July 15.

But for banks that make the bulk of their revenue from the bread-and-butter activity of making loans, the results from JPMorgan Chase weren’t nearly as positive. Read more

Looks like a tough earnings season ahead for the biggest U.S. banks

Investors won’t get their next dose of bank earnings reports until JPMorgan Chase releases second quarter earnings on July 14, but earnings season is already looking awfully iffy for the big U.S. trading banks.

Trading revenues are forecast to fall again for the quarter. That would mark the fifth straight quarterly year-over-year drop.

Revenue from fixed income trading at U.S. banks will fall 30% from the first quarter, according to a report from Citigroup this week. Revenue from equity trading will drop by 15%. Total trading revenue at the five biggest Wall Street banks–Goldman Sachs (GS), JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C), and Morgan Stanley (MS)–may drop 4.4% in the second quarter of 2011 from the second quarter of 2011, and 17% from the first quarter of 2011, according to a report by Oppenheimer & Co. Trading accounted for almost a quarter of these bank’s revenues last year.

Analysts have been busy cutting their earnings estimates for the group–according to Bloomberg, seven analysts have cut their earnings estimates for Goldman Sachs and Morgan Stanley, for instance, in the last four weeks. So the question for earnings season will be have the stocks fallen so much—10% or more since March 31—and have estimates come down so much, that bank shares will actually rally on just the expected degree of bad news.

In an earlier quarter—say the last quarter of 2010—I would have voted for “Rally on the bad news.” But I think that’s unlikely this quarter.

Why? Read more