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Wells Fargo, JPMorgan earnings beat Wall Street estimates

April 13, 2012|By E. Scott Reckard
  • A protest against banks last October in downtown Los Angeles included pickets with images of Wells Fargo Chief Executive John Stumpf.
A protest against banks last October in downtown Los Angeles included pickets… (Genaro Molina / Los Angeles…)

Wells Fargo & Co. and JPMorgan Chase & Co. kicked off the bank earnings season by reporting higher than expected profits Friday, with strong mortgage results helping to boost revenue higher than analysts had anticipated at the two largest home lenders.

Fourth-quarter profit rose 13% at Wells Fargo while JPMorgan Chase’s net income fell by 3% -- a smaller decline than analysts had expected from record earnings in the fourth quarter of 2011.

The results bode well for the banking industry, according to Keefe, Bruyette & Woods analyst Fred Cannon, who said in a note to investors that JPMorgan Chase also exceeded expectations in its huge investment banking and trading businesses.

But concerns over expenses at the banks and the weak global economy sent their stocks lower in early trading. JPMorgan Chase was off by $1.03, or 2.3%, at $43.81 in late-morning trading in New York, while Wells Fargo was down 79 cents, or 2.3%, at $33.23.

As the U.S. economy stabilized, both banks continued to release money they previously had set aside to cover loan losses -- $400 million at Wells and a whopping $1.8 billion at JPMorgan Chase.

Record low mortgage rates drove a wave of refinancing throughout the home-lending business in the quarter. Wells Chief Executive John Stumpf said the outlook also was becoming brighter for the home-purchase business, with markets in some regions -- including the San Francisco Bay area -- bouncing off the bottom.

“With higher rental rates and lower home values and great financing rates, there’s a point in time where the market’s going to clear,”  Stumpf said during a call with analysts. “We’re getting very close to that point [overall] and in some places seeing it.”

San Francisco-based Wells said it earned $4.25 billion in the fourth quarter, or 75 cents a share, up from $3.76 billion, or 67 cents a share, a year earlier. Revenue rose 6.4% to $21.6 billion from $20.2 billion. Wall Street had expected 73 cents a share on revenue of $20.5 billion.

JPMorgan Chase earned $5.38 billion, or $1.31 a share, down from $5.56 billion, or $1.28, a year earlier, when the New York bank had more publicly traded shares. Analysts had been expecting only $1.15 in profit. Revenue rose by 6% to $27.4 billion, beating Wall Street’s expectations by $3 billion.

Commercial  lending grew at both banks, and Chase’s $1.8 billion release of loan loss reserves was much greater than expected, Citigroup analyst Keith Horowitz noted.

JPMorgan Chase CEO Jamie Dimon said it was unlikely that such huge reverses in the loss reserves would continue.

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