Wells Fargo earned $5.17 billion, or 92 cents a share, in the first quarter,… (Justin Sullivan, Getty…)
Two of the nation's healthiest banks reported sharply higher profits and fewer loan delinquencies as bank earnings season began, but a slowdown in the mortgage business disappointed investors.
JPMorgan Chase & Co.'s first-quarter earnings rose 33% and Wells Fargo & Co.'s 22%, but much of the profit came from cost-cutting and the release of reserve funds that had been set aside to cover possible losses.
"They beat expectations [for per-share earnings] but the beat largely came from improved credit trends, which is not what investors wanted to see," said analyst Joe Morford, who follows Wells Fargo for RBC Capital Markets and has an "outperform" rating on the San Francisco bank.
"And the Street has been obsessed by mortgage banking, which is down — about where we expected it to be, but down," Morford said.
Wells Fargo earned $5.17 billion, or 92 cents a share, compared with $4.25 billion, or 75 cents a share, in the year-earlier quarter. Wall Street had been anticipating 88 cents a share. Revenue fell to $21.3 billion from $21.6 billion, coming up short of what Wall Street had anticipated.
JPMorgan Chase, based in New York, earned $6.5 billion, or $1.59 a share, for the three-month period that ended March 31, up from $4.9 billion, or $1.19 a share, a year earlier. Analysts had expected $1.39. Revenue fell to $25.8 billion from $26.8 billion a year earlier.
JPMorgan Chase said its investment banking and asset management earnings were up, and its set-asides to cover litigation, much of it stemming from bad loans from the housing bust, were down. What's more, Chief Executive Jamie Dimon said the housing market and economy are looking strong.
But so far, that hasn't been enough to trigger much new demand for loans on Main Street.
"Small businesses remain cautious about the recovery and fiscal uncertainty, and are not investing their capital," Dimon said.
At Wells Fargo, the No. 1 home lender, mortgage originations, applications submitted and loans in the pipeline were all at the lowest levels in a year, although the profit Wells recorded when it sold mortgages was significantly higher than in most of 2012.
Wells Fargo CEO John Stumpf said the housing market is strong, with prices rising but affordability still good.
"Our near-term outlook is for steady gains in home sales, building activity and price appreciation," he said during a conference call.
He noted that loans for home purchases, which have been at weak levels, rose 31% during the quarter, an encouraging sign. With recovery taking hold, Wells intends to pitch purchase loans strongly to customers at its more than 6,000 branches, Stumpf said.
Still, purchases aren't expected to increase fast enough to offset a slowing in the refinance boom that has buoyed home lenders over the last year. The Mortgage Bankers Assn. expects home loan volume to decline 20% this year compared with last year.
"When you look at what's going on in the industry and at Wells Fargo, it's more or less what we expected," Wells Chief Financial Officer Tim Sloan said in an interview. "At a given interest rate, there are only a finite number of customers who can take advantage of a refinance opportunity."
Still, Sloan said, mortgage lending remains strong by historical standards, with "hundreds of billions of dollars" in home loans serviced by Wells still candidates for rate-lowering refinances.
JPMorgan and Wells Fargo released their earnings reports early Friday morning. Wells Fargo shares closed Friday at $37.21, down 0.8%, or 30 cents. JPMorgan stock closed at $49.01, down 0.6%, or 30 cents.