Here’s why bank stocks are getting hit even after their earnings beat the Street

Indeed, mortgage banking revenue tumbled for both J.P. Morgan as well as Wells Fargo. Trading was mediocre at Citigroup, while PNC saw declines in revenue as well as deposits. Trading widely was in line with estimates, nevertheless not blockbuster as many had figured considering all the market volatility inside first quarter.

Analysts had expected the industry to reap strong benefits via December’s corporate tax cut, which reduced the nominal federal rate via 35 percent to 21 percent as well as slashed the effective rate as well for most banks. Volatility also was likely to boost trading revenues, nevertheless results were uneven.

Bove has long railed against conventional wisdom which rising interest rates automatically would certainly benefit banks, as well as he said Friday’s results validated which view.

“If you take these things as well as ask how is actually the core banking business doing, the idea isn’t doing. the idea’s not producing higher revenues, because the idea’s not producing more loans,” he said.

“The interest rate chatter led to an expectation of much higher results on a fundamental basis, as well as the chatter was always wrong,” he said. “the idea was wrong because interest rates do not drive bank earnings. What does drive bank earnings is actually what they sell.”

There also were some individual stories which held bank share prices after the earnings reports became available.

For Wells Fargo, the idea was a familiar nemesis: legal expenses related to the batch of scandals which has emerged over the past year as well as a half. The bank is actually under fire for the fake accounts fiasco as well as allegations of wrongdoing in its auto as well as home lending businesses.

which reality took the shine off results which otherwise appeared strong. The bank posted earnings of $1.12 a share, 6 cents better than analyst estimates.

“The … beat masked weakness across the bank which has a tighter [net interest margin], smaller balance sheet, lower fee revenue, as well as higher operating expenses than expected,” said David Long, banking analyst at Raymond James. “We believe Street EPS revisions will be negative as well as expect deteriorating fundamental performance to continue to weigh on WFC shares.”

Long added which the higher-than-expected operating expenses were due to legal costs which were worse than thought.

To be sure, the reactions weren’t all negative about bank earnings.

J.P. Morgan’s trading softness came amid an otherwise “strong boost to the bottom line” via investment banking as well as markets, said Ana Arsov, managing director at Moody’s Investors Service.

“JPM had a credit positive first quarter with all franchises showing healthy customer engagement,” Arsov said. “This specific was also supported with particularly favorable performance inside consumer as well as retail bank on back of increased net interest margins due to higher rates, strong deposit growth as well as benign credit costs.”

However, Bove said broader issues are confronting the industry. The big players, he said, are going to have to adjust their business versions to continue to gain investor confidence.

“For the vast majority of banks inside United States, they’re not selling anything,” Bove said. “If JPM can’t sell loans because nobody is actually interested in buying them, the idea means people are not buying products, the idea means the economy is actually not moving at a fairly rapid pace. All which stuff gets pulled into the idea. The bottom line is actually business is actually not Great as well as which the stocks are not doing well.”

WATCH: Weak loan growth bedevils banks.

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