Washington News Overrides Q2 Big Bank Earnings Reports

Big bank earnings season is officially in the books, and it didn’t quite unfold the way bank investors had hoped. Despite mixed numbers from most big banks, trading revenue slumped in the second quarter and dovish commentary from Federal Reserve chair Janet Yellen suggests rising rates may not provide banks with as much net interest margin wiggle room as investors had hoped.

Since the first wave of earnings reports came out on July 14, only Morgan Stanley MS shares have gotten a boost in the market after the company reported a relatively small drop in trading revenue. Morgan Stanley shares are up 2.2 percent since earnings season began, but Citigroup Inc C, Bank of America Corp BAC, Wells Fargo & Co WFC, Goldman Sachs Group Inc GS and JPMorgan Chase & Co JPM shares are all down between 1.3 and 4.6 percent. Even the Financial Select Sector SPDR Fund XLF is down 0.9 percent in that time.

Related Link: Yellen Puts A Crimp In Financial Rally

Trading revenues for the big banks were down in the second quarter after relatively stable global financial markets provided few opportunities for profits. In addition, bank investors are getting very little help out of Washington, D.C. Outside of Yellen’s dovish comments to Congress, the Republican agenda, which investors had hoped would provide a tailwind to bank earnings, seems to have stalled on health care reform.

If Congress can’t get health care reform completed and move on to tax cuts and financial deregulation, bank stocks may struggle to produce the earnings that would justify their huge run-ups since Election Day.

Even after the post-earnings selloff, each of the big bank stocks mentioned above is up between 19 and 40 percent.

Joel Elconin contributed to this story.