JPMorgan's Earnings Disaster Drops the Dow 100 Points

Earnings season has swung around hard on the market today, as the Dow Jones Industrial Average (DJINDICES: ^DJI  )  tumbled 130 points as of 2:30 p.m. EDT following some ugly numbers from one of America's top big banks. All but a handful of blue-chip stocks are in the red -- although no Dow member is taking a beating today like JPMorgan Chase (NYSE: JPM  ) , which has sunk 3.4% on its earnings report. Around the market, fellow big bank Wells Fargo (NYSE: WFC  ) managed to breathe some life into today's market sell-off with better results of its own. Let's catch up on what you need to know.

Big bank revenue tumbles

Source: Wikimedia Commons

JPMorgan investors had looked to today's results as the start of a brighter future for the bank, with billions of dollars in legal costs now behind it, but it wasn't to be for one of America's largest financial institutions. The company's quarterly revenue fell more than $1.5 billion short of analyst expectations, declining 8.5% year over year, while net earnings plunged by a headache-inducing 19%. The culprit for the disaster? Mortgage lending, which hasn't helped quarterly results around the financial industry much at all lately; JPMorgan's lending revenue imploded by 84% year over year.

Things weren't much better across the company's business portfolio. Revenue from bond trading fell by 21%, and even equity market revenue, which posted some of the smallest losses within the company, fell by 3% year over year. Company CEO Jamie Dimon took an optimistic tone toward the earnings miss by citing the volatility of the financial world, but investors shouldn't just dismiss JPMorgan's poor results and across-the-board revenue disappointment. Yes, the bank is moving past of its myriad legal hurdles, and its ability to keep costs down is inspiring for investors. But increased regulatory scrutiny over the big banks means JPMorgan could struggle to drive its lagging business higher in coming quarters with interest rates still sitting around record lows and the mortgage industry in a big slump.

Revenue is becoming a problem around the industry, given rival Wells Fargo's own earnings today -- although the big bank managed to make the most out of its own quarterly report and saw its stock spike by 1.3%. Wells Fargo also took a revenue drop for the quarter, albeit a much more manageable 3% year-over-year decline that didn't impede the bank's 14% year-over-year earnings growth that beat expectations. However, Wells Fargo's mortgage originations slumped by 28% from the fourth quarter and 66% year over year. With a tax benefit and a release of reserves helping Wells Fargo's earnings jump, don't buy too much into this company's earnings beat, although it, like JPMorgan, has done a good job keeping costs under control.

Around the Dow today, Merck  (NYSE: MRK  ) has gained 0.7%. The company has fallen behind in the race to launch an oral hepatitis C drug and capture a slice of what analysts project could be a $20 billion market, but Merck yesterday released some welcome news to investors who have fretted the pharma's pace. A study of a combination of two Merck drugs, MK-5172 and MK-8742, showed a 98% treatment rate of hep C patients dealing with cirrhosis who previously had gone untreated. The phase 2 study is a good sign for Merck's progress in the battle for the oral this market, although the company will need to keep moving along at full speed, considering that Gilead Sciences (NASDAQ: GILD  ) has already arrived to the market with its own potent hep C drug Sovaldi. However, Sovaldi's hefty price tag has generated controversy, opening up the door to hard-charging rivals that can take advantage of the situation. If Merck plays its cards right, investors could win big in the near future.

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Dan Carroll

Dan began writing for the Motley Fool in 2012. He is a health care specialist who also follows the defense industry along with tracking the broader U.S. and international markets.

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9/1/2015 4:35 PM
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