Second-quarter earnings surged at two of the nation's largest
banks, JPMorgan Chase and Wells Fargo, as reduced loan losses more than
offset the beginnings of a slowdown in mortgage lending provoked by
rising interest rates.
JPMorgan Chase and Wells Fargo both beat analysts' consensus estimates, driven by cost-containment and reversals of reserves previously set aside for bad loans, which were made possible by rising home prices. Both said the broad improvement in the economy is helping their business, but each sees a big decline in mortgage lending in the second half of the year.
INDUSTRY OUTLOOK: Slowdown forecast for earnings growth
"It's a whole potpourri,'' JPMorgan Chief Executive Jamie Dimon said on a conference call with stock analysts, explaining that an improving economy can boost the bank's trading and commercial lending businesses even as it pushes rates higher and curtails demand for mortgage refinancings. "It's almost impossible to separate out.''
Wells Fargo CEO John Stumpf said the economy is still slow enough that demand for loans is still growing modestly, but added that recent hiring gains point to improved business confidence that should help later in the year.
"The strength in the housing market was a positive catalyst to our results in the second quarter in a number of ways, including higher originations for home purchases,'' he said. "Rates rising for the right reason — an improving economy — is beneficial for our customers, which benefits Wells Fargo."
JPMorgan reported earnings of $6.5 billion, compared with $5 billion a year ago. Earnings per share were $1.60, up 32% from a year ago. Analysts' average forecast was $1.44 a share, according to FactSet.
Revenue increased to $26 billion, up $3.1 billion from last year's period.
Wells Fargo's earnings rose 20% to 98 cents a share. Net income was $5.52 billion, up from $5.17 billion in the same quarter last year. FactSet's estimate was for 93 cents a share in earnings.
Wells Fargo's revenue was $21.4 billion, up $89 million.
Both banks also raised their quarterly dividends — JPMorgan by 8 cents to 38 cents a share and Wells Fargo by 5 cents to 30 cents a share.
Stocks of both banks were trading slightly higher at midday Friday. JPMorgan was up 24 cents to $55.38 a share and Wells Fargo was up 98 cents to $42.86 a share.
Both companies had a good quarter, but Wells did slightly better, said Raymond James banking analyst Anthony Polini.
"Credit quality was the key driver for the surprise at Wells, and loan growth and margins were better than at JPM,'' Polini said.
Wells Fargo said its total loan portfolio grew 3.4%, reflecting an improving economy, and its loan losses were the smallest since the second quarter of 2006. As expected, the rise in interest rates began to affect the company's mortgage business. Non-interest income from mortgage banking dropped 3%, and the value of mortgage applications pending at the end of the quarter dropped 15% to $63 billion.
JPMorgan's weak spot was that loan growth across the industry continued to be soft, Dimon said. Business banking loan volume was little changed from the first quarter and up 4% from a year ago, the company said. New business-loan originations were 7% higher than in the first quarter, but 26% lower than a year ago.
Both banks said they are bracing for a sharp decline in mortgage-banking business in the second half of the year. Refinancings have already begun to drop sharply. The average mortgage serviced by Wells Fargo now carries as 4.59% interest rate, and with 30-year fixed mortgages now at a national average of 4.51%, many consumers have little incentive to refinance, Keefe Bruyette & Woods analyst Chris Mustacio said.
Mortgage originations could drop as much as 30% in the second half, JPMorgan said, which could mean layoffs to cut costs. Wells executives said on their conference call that they didn't know how big a decline is coming, and emphasized that mortgage rates remain near historic lows, with houses still much cheaper than in 2006.
SOURCE : http://www.usatoday.com/story/money/business/2013/07/12/jpmorgan-wells-fargo-earnings/2511633/
JPMorgan Chase and Wells Fargo both beat analysts' consensus estimates, driven by cost-containment and reversals of reserves previously set aside for bad loans, which were made possible by rising home prices. Both said the broad improvement in the economy is helping their business, but each sees a big decline in mortgage lending in the second half of the year.
INDUSTRY OUTLOOK: Slowdown forecast for earnings growth
"It's a whole potpourri,'' JPMorgan Chief Executive Jamie Dimon said on a conference call with stock analysts, explaining that an improving economy can boost the bank's trading and commercial lending businesses even as it pushes rates higher and curtails demand for mortgage refinancings. "It's almost impossible to separate out.''
Wells Fargo CEO John Stumpf said the economy is still slow enough that demand for loans is still growing modestly, but added that recent hiring gains point to improved business confidence that should help later in the year.
"The strength in the housing market was a positive catalyst to our results in the second quarter in a number of ways, including higher originations for home purchases,'' he said. "Rates rising for the right reason — an improving economy — is beneficial for our customers, which benefits Wells Fargo."
JPMorgan reported earnings of $6.5 billion, compared with $5 billion a year ago. Earnings per share were $1.60, up 32% from a year ago. Analysts' average forecast was $1.44 a share, according to FactSet.
Revenue increased to $26 billion, up $3.1 billion from last year's period.
Wells Fargo's earnings rose 20% to 98 cents a share. Net income was $5.52 billion, up from $5.17 billion in the same quarter last year. FactSet's estimate was for 93 cents a share in earnings.
Wells Fargo's revenue was $21.4 billion, up $89 million.
Both banks also raised their quarterly dividends — JPMorgan by 8 cents to 38 cents a share and Wells Fargo by 5 cents to 30 cents a share.
Stocks of both banks were trading slightly higher at midday Friday. JPMorgan was up 24 cents to $55.38 a share and Wells Fargo was up 98 cents to $42.86 a share.
Both companies had a good quarter, but Wells did slightly better, said Raymond James banking analyst Anthony Polini.
"Credit quality was the key driver for the surprise at Wells, and loan growth and margins were better than at JPM,'' Polini said.
Wells Fargo said its total loan portfolio grew 3.4%, reflecting an improving economy, and its loan losses were the smallest since the second quarter of 2006. As expected, the rise in interest rates began to affect the company's mortgage business. Non-interest income from mortgage banking dropped 3%, and the value of mortgage applications pending at the end of the quarter dropped 15% to $63 billion.
JPMorgan's weak spot was that loan growth across the industry continued to be soft, Dimon said. Business banking loan volume was little changed from the first quarter and up 4% from a year ago, the company said. New business-loan originations were 7% higher than in the first quarter, but 26% lower than a year ago.
Both banks said they are bracing for a sharp decline in mortgage-banking business in the second half of the year. Refinancings have already begun to drop sharply. The average mortgage serviced by Wells Fargo now carries as 4.59% interest rate, and with 30-year fixed mortgages now at a national average of 4.51%, many consumers have little incentive to refinance, Keefe Bruyette & Woods analyst Chris Mustacio said.
Mortgage originations could drop as much as 30% in the second half, JPMorgan said, which could mean layoffs to cut costs. Wells executives said on their conference call that they didn't know how big a decline is coming, and emphasized that mortgage rates remain near historic lows, with houses still much cheaper than in 2006.
SOURCE : http://www.usatoday.com/story/money/business/2013/07/12/jpmorgan-wells-fargo-earnings/2511633/
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