Big Banks: Financial Losers

NEW YORK (TheStreet) -- Bank of America was the loser among the largest U.S. financial names on Wednesday, with shares declining more than 5% to close at $8.68.

The broad indexes all pulled back over 1%, after China's first-quarter gross domestic product growth came in at an 8.1% annualized pace, slowing from 8.9% during the fourth quarter.

A market rally during the previous session had in part reflected whispers that China's first-quarter gross domestic product report would show a surprisingly strong annualized growth rate of 9%.

The KBW Bank Index declined over 3% to close at 47.18.

JPMorgan Chase and Wells Fargo led off earnings season for the largest U.S. banks, and the reaction wasn't pretty despite above-consensus profits from both companies.

JPMorgan Chase
JPMorgan's shares pulled back 4% on Friday to close at $43.21. The stock has now returned 31% year-to-date, following a 20% decline during 2011.

The shares currently trade at eight times the consensus 2013 EPS estimate of $5.54.

JPMorgan reported first-quarter earnings on a managed basis of $5.38 billion, or $1.31 per share, soundly beating the consensus estimate of $1.18, among analysts polled by Thomson Reuters. The company saw a strong recovery in trading revenue, to $4.66 billion in the first quarter, compared to $2.49 billion during a very difficult fourth quarter. Trading revenue was still down 8% year-over-year. JPMorgan also reported very strong first-quarter mortgage revenue of $2.01 billion, up from $725 million in the fourth quarter and a loss of $487 million during the first quarter of 2011.

All of the large banks are expected to report relatively strong first-quarter mortgage volume and revenue, in part from President Obama's expanded Home Affordable Refinance Program, which allows certain mortgage loan borrowers to refinance their homes at the current low rates, no matter how much the value of the home has declined.

Interested in more on JPMorgan Chase? See TheStreet Ratings' report card for this stock.

Wells Fargo
Wells Fargo's shares declined 3.5% on Friday, to close at $32.84. The shares have now returned 20% year-to-date, following a 10% decline during 2011.

The shares currently trade at nine times the consensus 2013 EPS estimate of $3.67.

Wells Fargo on Friday reported first-quarter earnings of $4.2 billion, or a record 75 cents a share, beating the consensus EPS of 73 cents.

The company reported a 21% quarter-over-quarter increase in mortgage banking revenue, to $2.9 billion, supporting total revenue of $21.6 billion, which exceeded the consensus estimate of $20.5 billion.

Following a robust $129 billion in first-quarter mortgage loan originations, CFO Tim Sloan indicated that Wells Fargo would also have a strong second quarter for mortgage volume, saying that "the unclosed mortgage pipeline was solid at $79 billion at quarter-end."

Wells Fargo reported total first-quarter noninterest expenses of 13.0 billion, increasing from $12.5 billion in the fourth quarter, and $12.7 billion during the first quarter of 2011. Sloan said that the company expects "a $500-$700 million overall reduction in noninterest expense during the second quarter."

Interested in more on Wells Fargo? See TheStreet Ratings' report card for this stock.

Bank of America
Bank of America's share have now returned 56% year-to-date, following a 58% decline during 2011.

The shares trade at just 0.7 times the company's reported Dec. 30 tangible book value of $12.95, and at eight times the consensus 2013 EPS estimate of $1.06.

Bank of America is slated to report its first-quarter results on April 19. The consensus among analysts is for the company to post first-quarter earnings of 12 cents, declining from fourth-quarter earnings of 15 cents and a profit of 17 cents during the first quarter of 2011.

Guggenheim Securities analyst Marty Mosby on Wednesday raised his rating for Bank of America to buy from neutral, while maintaining his price target of $11. He cited valuation as the main motivator for the upgrade, saying that the shares had "traded down 15%, since peaking at $10 following the company's successful result from the Federal Reserve's annual stress tests in March, creating 29% upside potential to our price target, which we believe, even with BAC's heightened risk profile, justifies a buy rating."

Mosby is out in front of the consensus, estimating the bank will post a profit of 20 cents a share in the March quarter.

Mosby's $11 price target for Bank of America "is based on taking BAC's projected year-end 2013 tangible book value per share of $15 and netting out our worst-case loss expectation of $70 billion, or $4 unfavorable impact to tangible book value (75% of the recent Fed Stress Test losses)."

-- Written by Philip van Doorn in Jupiter, Fla.

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