Stock of the day 10/04/2015 – Wells Fargo & Co/JPMorgan Chase & Co

Earnings season is now fully underway, and next Tuesday sees two of America’s biggest banks announce their Q1 2015 earnings releases.

First up is Wells Fargo & Co; the bank saw steady gains throughout 2014, but has been more consolatory than surging in the first quarter of 2015. After starting last year at $45.23, it opened up 2015 at $54.99 in a strong $10 increase over 12 months; the stock then hit a low of $50.58 in mid-January, in a fall that was felt by companies across the markets. However, it managed to quickly turn itself around, and reached $56.29 towards the end of March before falling slightly to currently trade at $54.18.


(Source: IT-Finance.com 10/04/2015)

The big pre-release news is that Wells Fargo, alongside Blackstone, is in talks to buy General Electric’s real estate portfolio, valued at around $30 billion. Any clarification of this deal, one that would be one of the biggest since the 2008 crisis, will be eye-catching for investors and could define this earnings release.

There is also buzz that an increase in mortgage applications could lift the big US banks, with Wells Fargo especially poised to benefit from this surge. The bank held 14% of 2014 mortgages, leaving it as the biggest mortgage lender in the country; however, this time last year saw a huge £1.5 billion decline in mortgage revenues, something that Wells Fargo will be keen to make up for with this recent mortgage boost. Overall, analysts are tentative over Wells Fargo & Co, giving the bank a consensus rating of ‘hold’ and average target price of $56.91.

Tuesday also sees JPMorgan Chase & Co announce its first quarter figures, with the bank having a far more erratic 2014/15 performance than Wells Fargo. It opened last year at $58.29, and plunged to $53-54 in both mid-May and mid-October, a far contrast from Wells Fargo’s steady climb. However, it did manage to close the year $4 up, subsequently opening 2015 at $62.63. However, this was to be its 2015 high so far, after JPMorgan plummeted to $54.28 at the start of February, with only an intraday high of $62.86 in the first week of March able to match its opening New Year price. It is now trading at $61.45.


(Source: IT-Finance.com 10/04/2015)

JPMorgan, after Wells Fargo, is the second biggest US mortgage lender, with 7% of the market share; the bank has been moving to maximise its profits in this area, and announced in February that its annual mortgage business expenses had fallen by 30% after cutting its mortgage staff by 34%. JPMorgan also saw the highest revenue from equity underwriting fees of all the US banks in the first quarter, with a big boost from JPMorgan’s role in the Actavis/Forest Laboratories deal bringing in $55 to $65 million in fees.

Yet JPMorgan’s CEO Jamie Dimon isn’t sharing in the good news. Dimon has warned that ‘Silicon Valley is coming’, and that tech start-ups pose a big threat to Wall Street, as well as ominously claiming that ‘there will be another crisis’, one that will bring with it far more volatility than the last. Regardless, analysts are bullish on the stock, giving JPMorgan Chase & Co a consensus rating of ‘buy’ with an average target price of $64.27.