Tags: Wells | Fargo | JPMorgan | Housing

Wells Fargo, JPMorgan Results Suggest Housing Market Slowing

By    |   Sunday, 14 April 2013 04:40 PM

First-quarter financial results reported by Wells Fargo and JPMorgan on Friday indicate the housing market may be slowing.

JPMorgan reported a 4 percent drop in total revenue from the first quarter of last year, while Wells Fargo reported a 1.7 percent drop.

A drop in mortgage lending was a major factor, the Journal reports. JPMorgan said its mortgage profits fell 31 percent; Wells Fargo said its mortgage-banking income was down 2.7 percent.

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The downturn in refinancings is a sign of worsening health for the financial sector and the general economy, the Journal says. The article quoted bank analyst Todd Hagerman of Sterne Agee & Leach as saying the numbers "underscore expectations for a slowing economy over perhaps the next couple of quarters."

JPMorgan's net interest income, a measurement for lending profitability, fell 6 percent to $10.9 billion. Wells Fargo reported its net interest income was down 4 percent to $10.4 billion.

On the Wells Fargo earnings conference call, Crédit Agricole Securities analyst Mike Mayo said loan profits "stunk," according to the Journal.

Bank officials blamed the fewer number of days in the quarter, saying net-interest income would have been flat of the quarter two more days.

Overall, JPMorgan reported $6.53 billion of net income, a 33 percent increase, helped by in increase in its investment banking and lower expenses. Wells Fargo had $5.1 billion profit, a 22 percent increase.

Earnings exceeded analysts' expectations because the banks reduced money being saved to cover possible future losses, not because of growth in their businesses, according to the Journal.

Declining mortgage profits for Wells Fargo in particular may be a warning sign for the overall mortgage industry. JPMorgan is an investment banking giant, but Wells Fargo is the largest mortgage originator and is viewed as a benchmark for mortgage industry. A shrinking mortgage pipeline for Wells Fargo could mean that demand for mortgages is slowing down.

"We don't see much to get excited about today, given the relatively full valuation on earnings, and the lack of visibility as to when the net interest margin will stop falling," Erik Oja, an analyst with S&P Capital IQ, told Barron's. "Wells Fargo is well-positioned to benefit from an improving U.S. housing market, but first-quarter results leave us cautious."

However, despite its drop in mortgage revenue, other parts of the company are doing well and the company continues to decrease its bad debt, said Kevin O'Keefe of Brown Advisory.

"When I look at first-quarter earnings, I see more of the same, and that means continued execution," says O'Keefe.

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Results reported by Wells Fargo and JPMorgan on Friday indicate that the mortgage-refinancing boom is running out of steam, The Wall Street Journal reports.
Sunday, 14 April 2013 04:40 PM
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