Earnings Take Shine Off Bank Stocks
July 14 2017 - 3:46PM
Dow Jones News
By Emily Glazer and Peter Rudegeair
A still-challenging environment around lending and interest
rates, along with frustration over Washington gridlock that
prompted angry remarks from J.P. Morgan Chase & Co. chief James
Dimon, took some of the shine off otherwise solid financial results
Friday from three of the biggest U.S. banks.
J.P. Morgan Chase led the way with record profit in the second
quarter of $7.03 billion. Even so, executives cut their guidance
for lending growth in 2017 as well as for interest income.
Shares in the bank and other lenders fell in response,
reflecting investor worries that economic growth might not be
strong enough to fuel further gains in bank shares given their
postelection run-up. The KBW Nasdaq Bank index is up about 28%
since last November's election, nearly double the performance of
the S&P 500 during that time.
On Friday, shares of J.P. Morgan dropped about 1%, while shares
in the other two big banks that reported, Wells Fargo & Co. and
Citigroup Inc., fell about 1.2% and 0.7%, respectively.
Investor excitement over policy changes that could benefit banks
has also cooled amid uncertainty around issues such as a tax-code
overhaul or infrastructure spending. Frustration on that front was
voiced by Mr. Dimon, who challenged Washington to do more to boost
the economy.
In doing so, he struck a tone more downbeat than the hopeful one
many bankers adopted after President Trump's election. "It's just
unfortunate, but it's hurting us, it's hurting the body politic,
it's hurting the average American," Mr. Dimon said of Washington
inaction. "We have become one of the most bureaucratic, confusing,
litigious societies on the planet. It's almost an embarrassment to
be an American citizen traveling around the world and listening to
the stupid shit we have to deal with in this country.
"We have to get our act together," he added.
Mr. Dimon's remarks came shortly after the bank said it expected
to grow its net interest income by $4 billion this year, down from
an earlier projection of $4.5 billion. A big driver of the
reduction has been persistent low yields on longer-term bonds,
which reflects skepticism about long-term prospects for economic
growth and inflation.
Long-term yields are moribund despite four increases in
short-term rates by the Federal Reserve since late 2015. That
combination weighs on bank profits because it narrows the
difference between short- and long-term rates -- a so-called
flattening of the yield curve.
Despite such factors, second-quarter results from J.P. Morgan,
Wells Fargo, Citigroup and PNC Financial Services Group Inc. beat
Wall Street expectations.
Write to Emily Glazer at emily.glazer@wsj.com and Peter
Rudegeair at Peter.Rudegeair@wsj.com
(END) Dow Jones Newswires
July 14, 2017 15:31 ET (19:31 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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