Banks are paying enormous amounts to settle cases stemming from bad mortgages, but investors in Wall Street's heavy hitters are looking at different numbers — and they like what they see.
An index of bank stocks climbed 1.3% on Tuesday after Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc. beat expectations for their second-quarter earnings.
Analysts had warned that their results from trading bonds, currencies and commodities would be weak, but they came in better than expected thanks to strength late in the quarter.
Citigroup kicked off the surge Monday, the same day that it said it would pay $7 billion to settle federal and state claims that it misrepresented the risks of mortgage-linked securities it peddled in 2006 and 2007 — soured investments that helped to trigger the financial crisis.
Counting the cost of that settlement, Citi's earnings of $181 million amounted to 3 cents a share, compared with $1.34 in last year’s second quarter. Excluding the settlement and other charges, the New York bank earned $1.24 a share, compared with the $1.05 that analysts on average had predicted.
Citi’s loan growth was “very robust,” its provision for lending losses fell to the lowest level in years, expenses were under control and its fixed-income trading revenue fell 11%, “much less than expected,” S&P Capital IQ analyst Erik Oja wrote in a note to investors.
Shares of Citi rose 3% after its report Monday and climbed an additional 1.8% on Tuesday, closing with a gain of 87 cents to $49.29.
JPMorgan said Tuesday that it earned $5.6 billion for the quarter, or $1.46 a share, down from $1.60 a share a year earlier but above Wall Street's expectation of $1.29. It said revenue, a problem for all banks in recent quarters, fell 2% to $25.3 billion, but that was more than the $23.8 billion analysts had expected.
Keefe, Bruyette & Woods analyst Chris Mutascio called the results “an across-the-board beat” driven by “strong investment banking fees, better-than-expected trading results, a rebound in mortgage banking, strong card income growth and lower net charge-offs.”
JPMorgan's stock jumped $1.98, or 3.5%, to $58.27.
Goldman Sachs shares rose $2.17, or 1.3%, to $169.17 on Tuesday after the bank said it earned $2 billion, or $4.10 a share, compared with Wall Street's expectations of $3.05.
Goldman's overall revenue rose 6% to $9.1 billion, even as revenue from fixed-income, currencies and commodities trading fell 10% to $2.2 billion. Still, those trading results were notably higher than the $2 billion expected by Keefe, Bruyette, which told investors: “June came in stronger than we, and company management, were expecting at mid-quarter.”
Wells Fargo, which has far less of a Wall Street operation than other big banks, reported its earnings last Friday, meeting expectations of $1.01 a share. Shares gained 4 cents to $51.35 on Tuesday.
Bank of America, which has been negotiating to settle its mortgage securities liability with the Justice Department, is expected to report its earnings Wednesday. Its shares rose 24 cents Tuesday, or 1.5%, to $15.81.
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