Weak Loan Growth Keeping the Banks Down Despite Strong Earnings

HedgeFundLIVE.com — As of today approximately 29% of the S&P 500 companies have reported earnings.  On average, 77% of those companies have beat street estimates by an average of 5%.  This shows in the S&P500 index which made a new high today.  As far as the financials go, however, it’s a completely different story.  So far, approximately 45% of financial names have reported with the vast majority beating street estimates by an average of 8%.  While the financials are beating by more than the average S&P 500 stock, their shares are rising to reflect the beats.  This is primarily because the street is viewing the earnings of most banks as somewhat low quality as they have come from improving credit as opposed to increased revenue as a result of loan growth and other primary operating activities.  For example, JP Morgan (JPM) beat the street earnings estimates by a fairly wide margin of 17% in the first quarter and even beat the revenue estimates albeit by a lower margin.  Since the earnings announcement, however, the stock has dropped like a stone and is now nearly 6% off its highs.  For another example, look at Wells Fargo (WFC) which beat street earnings estimates by around 8%.  Regardless, the stock is down around 10% off of its near-term highs.  Granted, Wells did miss the revenue estimates by a 4% margin.  I can cite a few more examples but you get my drift here. So what is going on?  

 

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http://www.hedgefundlive.com/blog/weak-loan-growth-keeping-the-banks-down-despite-strong-earnings

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