The Latest Batch of Earnings Disappoints

Five of the largest U.S. banks beat analysts' estimates for the first quarter, with JPMorgan Chase (JPM) and Wells Fargo (WFC) reporting record quarterly earnings. On closer inspection, the results are not all that impressive. As a group, the top six U.S. lenders reported the biggest percentage drop in quarterly revenue in three years, driven by lower lending and reduced fees. Net revenue at Bank of America (BAC), JPMorgan, Citigroup (C), Wells Fargo, Goldman Sachs Group (GS), and Morgan Stanley (MS) fell 13.3 percent in the first quarter from a year earlier, according to data compiled by Bloomberg. Pretax preprovision profits, which exclude taxes, loan-loss provisions, and one-time items and are considered a better gauge of profitability than earnings, slid 40.2 percent.

With unemployment stuck above 8 percent, housing prices falling, and new federal restrictions on how much banks can charge for services, investors have little appetite for bank stocks. The KBW Bank Index of the 24 largest U.S. banks has fallen 2.7 percent since Apr. 13, when JPMorgan was the first of the six banks to report results. The Standard & Poor's 500-stock index has climbed 2.5 percent over the same period. "We have spent the last few weeks on the road visiting investors," wrote Brian Foran and Glenn Schorr, analysts at Nomura Holdings, in an Apr. 14 research note. "The overwhelming feedback on banks has been, 'Why bother?' "