JPMorgan Chase & Co. (JPM:US) and Wells Fargo & Co. (WFC:US), the two most profitable U.S. banks last year, reported first-quarter earnings that topped analysts’ estimates on a surge in mortgage fees.
JPMorgan’s earnings per share climbed to $1.31 from $1.28 a year earlier, while Wells Fargo posted net income of 75 cents per share, up from 67 cents. Those results beat analysts’ estimates (JPM:US) of $1.17 and 73 cents per share, respectively.
Wells Fargo had its highest mortgage banking fees since 2009 and JPMorgan set a record for home-loan production income amid gains from the government’s Home Affordable Refinance Program and interest rates that fell to a record low. Both banks benefited from the lowest net charge-offs since the financial crisis as delinquencies fell.
“Mortgage has been pretty strong over the last quarter or so,” David George, a bank analyst at Robert W. Baird & Co., said in an interview on Bloomberg Radio’s Bloomberg Surveillance. “The mortgage business nationally here in the U.S. has really consolidated and the players that have benefited from that, JPMorgan and Wells Fargo among others, are really going to benefit from that this quarter.”
Still, both banks faced higher charges related to mortgage lawsuits and repurchase claims. JPMorgan set aside $2.5 billion more toward its litigation (JPM:US) costs during the first quarter mostly for mortgage-related disputes. Wells Fargo set aside $430 million to cover mortgage repurchase claims, an increase over the $404 million in the fourth quarter.
Revenue at Wells Fargo climbed 6.4 percent to $21.6 billion, more than the $20.4 billion forecast by analysts. JPMorgan’s revenue rose 6 percent to $26.7 billion from $25.2 billion during the first quarter of last year.
Wells Fargo’s costs also advanced, with non-interest expenses climbing about 2 percent to $13 billion amid higher compensation and legal spending.
The bank said quarterly costs will fall to $11.25 billion by the end of the year, the high end of Chief Executive Officer John Stumpf’s stated goal for reducing expenses to between $10.75 billion and $11.25 billion. Costs will fall by as much as $700 million in the second quarter, the company said.
Retail banking at JPMorgan, which includes home loans and checking accounts, earned $1.75 billion, up from $533 million in the fourth quarter and a loss of $399 million a year earlier. The net interest margin, which measures the profit margin on lending, declined to 2.61 percent from 2.89 percent a year earlier.
Demand for loans rose as the unemployment rate fell to 8.2 percent at the end of March from 8.9 percent a year ago. Mortgage originations likely climbed 5.3 percent to $318 billion in the first quarter from the same quarter last year, driven by strong refinance activity, according to the Mortgage Bankers Association.
Revenue at JPMorgan’s investment-banking unit didn’t match last year’s near-record $8.23 billion, falling 11 percent to $7.32 billion. It gained 68 percent from the fourth quarter as financial markets in Europe stabilized. Revenue from fixed- income and equity trading, almost doubled from the fourth quarter and beat estimates from analysts including Atlantic Equities’ Richard Staite.
“In the investment bank, you saw very strong flows in the underlying customer businesses in both fixed-income and equity markets,” Chief Financial Officer Doug Braunstein said.
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