JPMorgan and Wells Fargo kicked off bank earnings on Friday and Wall Street came away disappointed. That may spell trouble as the rest of the big banks and regional banks begin reporting results next week, analysts say.
Commenting on JPMorgan, Sterne Agee analyst Todd Hagerman told CNBC, "Clearly expectations were pretty high going into today's result, and the stock certainly traded up in anticipation of some pretty good numbers, quite frankly."
Investors and analysts zeroed in on the mortgage banking numbers. While expectations were fairly low, results were softer still, with production volumes dropping relative to expectations and mortgage applications slipping in the first quarter, Hagerman noted.
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"That's certainly not going to bode well as we get into next week particularly as we get into some of the regional banks as they start to report," he said.
Raymond James bank analyst Anthony Polini also highlighted JPMorgan's weaker mortgage banking numbers.
"On the very positive side, trading and capital markets was exceptionally strong, even stronger than people expected," Polini said. "On the other hand, the mortgage banking side slowed rather dramatically from the fourth quarter."
Morningstar analyst Jim Sinegal wrote in a note on JPMorgan: "While there were no negative surprises along the lines of the 'London Whale' incident that began in the first quarter of 2012, neither was there much to get excited about. Overall, the results were in line with our expectations, and we do not intend to alter our $53 fair value estimate."
For Wells Fargo, which controls about a fifth of the U.S. mortgage market, analyst Scott Siefers of Sandler O'Neil said total revenues were down only 2 percent. But he said the underlying fundamentals may be a bit more challenged. Originations were down 13 percent, applications down 8 percent, and the pipeline down 9 percent sequentially, he said, "So that's going to be tough to sustain this level of mortgage activity."
JPMorgan's loan growth was also disappointing, said Polini. Hagerman noted weakness in its consumer businesses despite a solid economy in the first quarter.
"And now certainly with an expected slowdown in the second quarter, we have obviously seen very mixed economic data the last couple of weeks. "Again, I think we're going to see some softness here in the sector in the coming days," Hagerman said.
Siefers agreed. "This is a group that's been very, very strong over the last six to nine months," he said. "Really that's been in the face of no real change to earnings estimates, which means it's been all P/E expansion. To see a little give back that's not unexpected at all."
Sterne Agee makes a market in JPM securities and provided and received noninvestment banking compensation from JPM.