Breakout

Wall Street Only Mildly Impressed by Strong Bank Earnings

Jeff Macke
Breakout

Bank of America (BAC) and Morgan Stanley (MS) reported quarterly results better than estimates but not strong enough to send their shares sustainably higher.

Morgan Stanley's EPS came in at 77 cents, a stunning 75% higher than Wall Street estimates. For its part, Bank of America more than doubled analysts' best guess, reporting 31 cents compared to expectations of 13 cents. The company also had stronger-than-expected revenues.

Both reports were laden with one-time charges related to terms like "Debt Valuation Adjustments (DVA)" and "Loan Loss Provisions." This maneuvering, while entirely justifiable from an accounting perspective, is one reason why the stocks are nowhere near their 10% pre-market gains.

Jon Najarian, co-founder of TradeMonster.com, joins me in the attached clip to discuss whether or not BAC and MS had results strong enough to justify the stocks adding to their already impressive year-to-date gains.

In Najarian's estimation the Street may be ready to put a bid into the financials in general, and these two names in particular. He says the reports we've seen over the last week from J.P. Morgan (JPM), Citigroup (C), and Goldman Sachs (GS) "weren't that bad," but they didn't elicit the kind of response Morgan Stanley and J.P. Morgan are receiving.

While Najarian sees "a rounded bottom" being formed in housing, the endless mess that is Europe continues to loom large. Today's news that a debt auction in Spain went ever-so-slightly better than expectations may help boost the banks, if only fleetingly.

The auction means "the environment is better overall this week than it was last week," Najarian says. Every little bit helps.

The general tone of bank executives has improved, whatever you think of the way their companies go about keeping score, quarter by quarter. Najarian notes that existing industry chieftains are playing for the long haul and not for a couple points in their stock.

"Banks and CEOs are telling us they actually believe things are getting better," Najarian says. Whether or not Wall Street believes them remains to be seen.

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