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Wells Fargo & Co (WFC): Beating the Odds

However, I believe the results remained an overall disappointment. In contrast to the widely circulated expectations of as much as $2 billion in additional revenue due to higher interest rates, the bank reported revenue that was only $110 million higher than the prior quarter.

Therefore, the bottom line also remained relatively stable compared to the first quarter. The bank also reported a net interest margin that was 31 bps below the linked quarter, confirming that JPMorgan Chase & Co. (NYSE:JPM) did not enjoy the benefits of higher interest rates as imagined by analysts.

The future ahead for JPMorgan is believed to be bright. Better-than-expected loan growth and capital market performance during the second quarter point toward an improving economy. Since, JPMorgan has a diverse business model, the bank is poised to benefit. Analysts at Barclays have raised their 2013 estimates for JPMorgan.

Another US large cap bank, PNC Financial Services (NYSE:PNC) is expected to report its performance on July 17. PNC Financial Services (NYSE:PNC)’s investors should be ready for a disappointing show. As Credit Suisse analysts estimate, PNC Financial Services (NYSE:PNC) is expected to report lower operating revenue for the second quarter including a decline in the net interest income, meaning the bank would not be able to take benefit of the higher interest rates. The bank’s lower operating revenue expectation is driven by a weak mortgage banking performance, which would partially be offset by higher consumer and corporate-banking services.

On the expenses front, the bank is again expected to show some weakness. However, during the second half of the current year, investors can expect some cost cutting.

Conclusion

So far, neither Wells Fargo & Co (NYSE:WFC) nor JPMorgan Chase were able to take full benefit of the rising interest rates environment as their barely visible net interest margins showed no significant improvement. Analysts at Credit Suisse have a similar expectation for PNC Financial. Having said that, Wells Fargo’s results were better-than-expected, compared to JPMorgan’s but the future for both banks will be tough.

Compared to JPMorgan, Wells Fargo’s management surprised analysts by re-balancing the bank’s portfolio and reporting a better-than-expected book value. I believe Wells Fargo’s management is better positioned to cope with the rough future ahead. Therefore, I am bullish on Wells Fargo.

The article Wells Fargo: Beating the Odds originally appeared on Fool.com and is written by Adnan Khan.

Adnan Khan has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of JPMorgan Chase & Co (NYSE:JPM)., PNC Financial Services, and Wells Fargo. Adnan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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