One-eyed man

13 April 2012 By Antony Currie, Agnes T. Crane Follow @AntonyMCurrie

The top two U.S. banks performed solidly enough in Q1. But both posted ho-hum 12 pct returns on equity flattered by government programs and extra risks. Wells, however, has better core growth and relies less on trading. That makes it deserving of a higher valuation than JPMorgan.

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JPMorgan on April 13 reported first-quarter net income of $5.4 billion, or $1.31 a share, beating the consensus estimate of sell-side analysts of $1.18 a share. The bank’s return on equity was 12 percent and its return on tangible equity was 16 percent.

Results included a $1.1 billion pre-tax gain from the Washington Mutual bankruptcy settlement; a $1.8 billion pre-tax benefit from reduced loan loss reserves; a $2.5 billion pre-tax expense from additional legal reserves; and a $900 million pre-tax loss from improvements in the value of the bank’s own liabilities.

Wells Fargo, also on April 13, reported higher-than expected profit of $4.25 billion, or 75 cents a share, beating the consensus estimate of sell-side analysts of 73 cents a share. Revenue, driven by mortgage banking and trading, increased to $21.6 billion, a 6 percent gain over the first quarter of 2011.

Return on assets of 1.31 percent was the highest since the first quarter of 2008. Wells Fargo’s net interest margin was 3.91 percent, down from 4.05 percent a year ago but up slightly from the fourth quarter.

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