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What We're Watching During Friday's Bank Earnings

Three of the big four U.S. banks report third-quarter earnings today: JPMorgan Chase (NYSE: JPM), Citigroup, and Wells Fargo (NYSE: WFC). In this week's "One to Watch" segment, Industry Focus: Financials host Jason Moser and Fool.com contributor Matt Frankel, CFP, discuss what they're looking for when the earnings reports hit the wire later this week.

A full transcript follows the video.

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This video was recorded on Oct. 8, 2018.

Jason Moser: Alright, Matt, we've got earnings season kicking in here. Friday marks the big start. That's when the big banks announce. We've got a number of them announcing Friday morning. We figured we would narrow down our playing field for the One to Watch this week and choose some of these banks that are going to announce earnings on Friday. Hit me with you One to Watch this week.

Frankel: Obviously, I'll be watching all of the big banks reporting earnings. But Wells Fargo is one that I really have my eye on, just because their last quarterly report was so terrible. Last quarter, they missed expectations. I don't really pay too much attention to expectations, as we've said on the show. But their revenue dropped almost 3% year over year. Their deposit base is down 2%. The big takeaway is, as of the end of last quarter, there were no signs that their scandals and whatever have really begun to get into the past yet. So, I'm looking for that.

I'm also looking for anything management might have to say about the Federal Reserve's penalty that they put on the bank. Wells Fargo is not allowed to grow right now, and we really don't have a clear timetable of when that might be lifted. So, any kind of color that management wants to give on that, I'll be looking for. Basically, I'm hoping to see that Wells Fargo's report isn't quite as horrible as last time. I don't have terribly high expectations, though.

Moser: [laughs] Yeah, it seems like they've got some cultural issues there they've really got to figure out it. I just keep on waiting for yet another shoe to drop.

Frankel: Someone at the writers' conference had a great quote on Wells Fargo. They said, "Wells Fargo is a great bank, aside from their fraud."

Moser: [laughs] And that really is the crux of it, right? You don't really want to bank with a bank that you don't trust.

Frankel: Yeah. I don't want to name names, but that that person really summed it up well.

Moser: And the ticker for Wells Fargo?

Frankel: WFC.

Moser: OK, great! I'm going to go with JPMorgan Chase, ticker JPM. I've always been a big fan of Jamie Dimon. If one reason is enough to invest in this business, I think he's it. So, I feel really good about him being there at the helm. Not afraid to speak his mind, either, on the calls, I'll tell you. He can be a little entertaining at times, too. The company is making a strong push into digital. Last quarter, they reported 31.7 million active mobile customers, which I think is actually kind of amazing. I'm not sure that I know anybody who is one of those active mobile customers, but hey, I guess they're out there. They have a very healthy yield, very well-capitalized bank. I think that's going to continue to be the case.

They do continue to buy back shares. Shares right now trading a little bit more than 2X tangible book value. I don't know that really is the borrow where they like to repurchase as much as possible. But, again, I think that of all of the big banks, this is the big bank that I would want to own first, so looking forward to that earnings call on Friday.

Jason Moser owns shares of MA, PYPL, SQ, Twitter, and Visa. Matthew Frankel, CFP owns shares of SQ and has the following options: short December 2018 $90 calls on SQ. The Motley Fool owns shares of and recommends MA, NFLX, PYPL, SQ, and TWTR. The Motley Fool owns shares of V and has the following options: short January 2019 $80 calls on SQ. The Motley Fool has a disclosure policy.

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