Wednesday, 14 January 2015

The latest quarterly excitements from Wells Fargo and J P Morgan

I usually write individual posts appraising the quarterly disclosures from Wells Fargo and J P Morgan. The latter though can be simply summarised as being all about the legal front:

‘Q4 included a $990M after-tax legal expense; backing that out, headline EPS would have been $1.54 vs. $1.19 reported and estimates for $1.31’

I was also interested by the quote from the J P Morgan CEO Jamie Dimon on the conference call which plays on a similar front:

"Banks are under assault ... We have five or six regulators coming at us on every issue."

Back in October - after another set of results heavy with legal influences - I noted that:

'how much really is a one-off and how much will always be there due to the variable business of running a multi-faceted bank?  If we assume half...then a fairer value for JPM shares could be in the US$62s...That is a big IF given some of the issues in financials but my instinct is that a return to the (see the chart above) historic support level of US$54 equates to a buying opportunity in the stock / return to US$60+ scope...Patience'. 

And where are the shares now?  Despite today's fall, still above that level.  Review again at US$54 (at best)...even if people like Goldman Sachs have been calling for a breakup (would agree with the J P Morgan management that would not be easy or necessarily particularly accretive due to regulatory capital requirements...still the investment bankers can but dream!!)


How about Wells Fargo? 

Well the 2014 progression on key metrics like pre-provision profit, deposits and the payout ratio seemed reasonable: 


Of course mortgages are becoming more refinance centred - no surprises there.


Back in October - at the time of the Q3s - I observed that the share looked more interesting in the mid US$40s. With a US$32+ book value, a return on equity of around 13.5% and rolling the numbers on another year I would still hold this view.  On the chart the US$46 level is one to note. 


So two big banks, two wait for lower levels.  

2 comments:

  1. Dimon shocked that he's not Baron de Rothschild anymore and is subject to the nation's laws. Pathetic or funny depending on your POV.

    ReplyDelete