By Liz Hoffman 

The five large U.S. banks with a major Wall Street presence beat analysts' earnings expectations over the past week, sometimes by a wide margin.

Yet with one exception, the banks' shares all sold off in response to the results. The KBW Nasdaq Bank Index has dropped 2% since earnings season started last Friday, compared with a 1% gain in the S&P 500.

Behind the disappointment: Bank stocks have run up significantly since the U.S. presidential election and found new momentum at the end of the second quarter, showing many investors already had priced in strong second-quarter results.

It was hard to live up to the billing. Interest rates have been only a mixed blessing. Short-term rates going up since last fall helps lenders, while the 10-year Treasury yield declining hurts them.

Then there is the Brexit hangover. Trading desks, especially in all-important fixed-income divisions, reported declines that shook the belief that trading had started a sustained rebound after years of slumping. Making matters worse: The year-ago period featured the U.K. Brexit vote, which led to a brief surge of activity and made this year's second quarter look tame by comparison.

In some cases, the drivers for banks' earnings wins weren't the superstar divisions like trading, but rather utility players unused to the limelight. This unlikely cast of heroes, from private equity to asset management and commercial lending, provided some boosts, but they weren't enough to move the stocks higher.

Here are highlights and lowlights from the big banks' earnings reports:

J.P. Morgan Chase: The largest bank in the country reported its highest quarterly net income ever, $7 billion, but investors still headed for the exits after last Friday's report because the bank trimmed its outlook for the second half of the year. Trading revenue was down 14% across bond and stock trading, while the commercial bank and asset-management arm both posted record profits and double-digit increases over a year earlier.

      Goldman Sachs:   Fixed-income revenue plummeted 40%, a dismal showing for Goldman's vaunted traders. Commodities, the business that vaulted Chief Executive Lloyd Blankfein to a corner office, posted its worst quarter ever as Goldman struggled to hedge its exposures. 

The firm did get a boost from private-equity investments. Revenue from Goldman's roughly $23 billion portfolio of equity stakes rose 88%, as some companies were sold and others were re-marked amid generally rising stock prices.

Bank of America: Lending at the Charlotte, N.C., bank didn't grow as much as some hoped. The nation's second-biggest lender posted a surprise decline in net interest income, after lowering guidance in recent weeks. The metric, which executives initially said would rise about $150 million, fell by $72 million.

Meanwhile, investment banking fees from merger advice and underwriting rose 9%. Merger fees hit a record as Bank of America leapfrogged J.P. Morgan and Morgan Stanley in the M&A rankings.

Citigroup: Credit cards continued to weigh on the global bank. The New York firm run by CEO Michael Corbat added more credit losses than revenue from card usage, and raised its forecast for delinquencies on cards it manages for retailers. Overall, net income in its consumer-banking business fell 12%. The bank expects those results to turn around later this year. Picking up the slack: investment banking. Revenue rose 22% there as Citigroup slid into second place in Dealogic's M&A rankings, its highest at this point in the year since at least 2008.

Morgan Stanley: The Wall Street firm run by CEO James Gorman was the exception this quarter. It saw broad-based gains across its business. Stock traders and debt traders posted the smallest year-over-year declines of any big bank; capital-markets bankers also provided a big boost, while wealth management set records in several categories.

Morgan Stanley was also the only big bank whose shares rose after its announcement.

Write to Liz Hoffman at liz.hoffman@wsj.com

 

(END) Dow Jones Newswires

July 20, 2017 14:55 ET (18:55 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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