M&T, Regions: Financial Winners
M&T's stock closed at $98.63, while Regions closed at $7.55.
The broad indexes all pulled back after Chevron (CVX) late on Tuesday provided an update on its financial results, saying that "earnings for the third quarter 2012 are expected to be substantially lower than second quarter 2012," as "upstream results are projected to be lower between sequential quarters, reflecting foreign exchange losses and lower liftings and realizations, partially offset by an asset sale gain," while downstream earnings are also expected to decline significantly, "reflecting the impact of negative timing effects, lower realized margins and the negative effects of several smaller unrelated items."
Chevron's stock was down over 4% to close at $112.45.
The Federal Reserve Wednesday afternoon released its October Beige Book survey, saying that "economic activity generally expanded modestly since the last report" in August, although "the New York District noted a leveling off in economic activity, and Kansas City indicated some slowing in the pace of growth."
The KBW Bank Index (I:BKX) rose slightly to close at 50.91.
Leading into Friday's kickoff of earnings season for the largest banks with reports from JPMorgan Chase (JPM) and Wells Fargo (WFC) , here are some focus points for investors, from Stifel Nicolaus analyst Christopher Mutascio, who has "Hold" ratings on both stocks:
While investors and analysts have been focused on JPMorgan's continued unwinding of the hedge positions that led to its $4.4 billion second-quarter trading loss and suspension of its common share buyback program (JPM still earned a cool $5 billion second-quarter profit ), Mutascio is concerned about the company's net interest margin, "
"During 2Q12 the company's net interest margin compressed 14 basis points to 2.47%, resulting in a 4.2% ($496 million) sequential quarter decrease in net interest income," Mutascio said, and while "management has indicated the 2Q12 margin compression was not driven by the de-risking of the balance sheet in the aftermath of the London trading issues, we would have greater confidence in our 2013 EPS estimate if we were to see the margin stabilize in 3Q12. Without stabilization, we believe the risk to the consensus earnings expectations would be to the downside."
A bank's net interest margin is the difference between its average yield on loans and investments and its average cost for deposits and borrowings. Most banks are seeing margins being squeezed, since the Federal Reserve's target federal funds rate has been in a range of between zero and 0.25% since late 2008, while the central bank in September increased its purchases of long-term mortgage-backed securities, in an attempt to push long-term rates down further, or at least keep them at their historically low levels.