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

Sell JPMorgan Chase (JPM)

Bank stocks look cheap on a historical basis. Unless, of course, revenue and earnings growth have ground to a halt in the sector. That, unfortunately, is exactly what happened last quarter as loan demand grew not at all at most banks and earnings improvements came pretty much solely from the reduction of reserves against bad loans. And it’s an increasingly consensus view of what banks will report for the second quarter too.

I think we’re seeing a shift in investor attitudes from optimism at the improvement in earnings from improving bank reserves against bad loans to dismay at a lack of revenue and earnings growth from traditional bank businesses. Partly that’s a result of reports that show a slowing in the U.S. economy—bank revenues would be hit by any slowing in economic activity. And partly it’s a worry about changes to U.S. and international banking regulations that promise to cut the revenue that banks can make from things like debit card transactions (which could go into effect as early as July 21 or suffer a six-month delay according to proposed Senate legislation) and that threaten to raise capital requirements so that the biggest banks have to keep more cash on hand. (The Fed is arguing for a 3 percentage point extra reserve requirement for the biggest banks.)

Take a look at JPMorgan Chase (JPM). In the long-term I think this is one of the best growth stories in the U.S. big bank sector. The bank took relatively little damage from the global financial crisis and that has given it the ability to expand into new markets—Asia for example—while competitors are still struggling to clean up their balance sheets.

From that long-term perspective the bank’s current price-to-earnings ratio of just 8.8 on trailing 12-month earnings looks very cheap.

From a near-term perspective of say, 2011 and into 2012, the P/E ratio may be about right, however. Read more

I’m suggesting that you think about lightening up on your exposure to financials. I don’t think you need to sell all your bank stocks, but the sector is showing signs of breaking down with another 10% drop in the cards. The sector showed a decent little bounce yesterday on JPMorgan Chase (JPM) CEO Jamie Dimon’s presentation at the company’s shareholder meeting, but it’s back on the downside again today.

The question is not just whether to sell, but also what to sell. Today I’m selling Citigroup (C) out of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/

Another 10% correction in this sector isn’t so big a correction that investors can’t sit still through it. But what troubles me is the good possibility that some of the biggest names in this sector aren’t going much of anywhere very quickly when the correction is over. Read more

Tomorrow’s Bank of America earnings release spooks bank stocks today

Be afraid. Be very afraid.

Of Bank of America’s (BAC) earnings report for the first quarter of 2011 scheduled for release tomorrow, April 15, before the market opens in New York.

Worries about what the bank will say tomorrow are, in my opinion, what sent bank stocks down in today’s session. Today JPMorgan Chase (JPM) dropped 2.8%. Wells Fargo (WFC) fell 1.7%. And Bank of America itself was down 1.1%.

Wall Street analysts are expecting the bank to report net income of $2.87 billion for the quarter. That would be up very slightly from the $2.83 billion in net income in the first quarter of 2010.

I think, as with JPMorgan Chase, that Bank of America could actually beat on the earnings line thanks to the release of reserves against bad loans.

But the likelihood is that the revenue line will be ugly. Really ugly. Read more