Banks’ results allay fears
JPMorgan Chase & Co. and Wells Fargo & Co. posted first-quarter results that soothed investors who had counted on the giant banks to handle the U.S. housing and credit crises better than many rivals.
Profit slumped 50% at JPMorgan, the third-largest U.S. bank, and fell 11% at Wells Fargo, the fifth-largest. Bad loans soared and executives at both banks said market woes were likely to deepen.
Yet the banks have had less exposure, relative to their sizes, to the risky mortgages and complex securities that have caused more than $200 billion in write-downs and credit losses at lenders worldwide since last summer.
Richard Moroney, chief investment officer at Horizon Investment Services in Chicago, said the banks’ write-downs and losses “were in line with what investors expected. There is relief.”
JPMorgan shares rose $2.84, or 6.7%, to $44.96 and Wells Fargo gained $1.20, or 4.3%, to close at $29.01.
JPMorgan said quarterly profit fell to $2.37 billion, or 68 cents a share, from $4.79 billion, or $1.34, a year earlier. Revenue fell 11% to $16.89 billion.
Results included a $955-million gain from a stake in credit card network Visa Inc., which went public last month.
Profit topped the average analyst forecast of 64 cents a share, according to Thomson Financial.
The New York-based bank set aside $4.42 billion for loan losses and took about $2.6 billion in write-downs tied to mortgages, loans to fund corporate buyouts and tight credit markets. Its allowance for credit losses rose $2.52 billion from the end of 2007 to $12.6 billion.
Wells Fargo said quarterly profit fell to $2 billion, or 60 cents a share, from $2.24 billion, or 66 cents, a year earlier. Revenue rose 12% to $10.56 billion. Analysts on average had forecast profit of 57 cents a share on revenue of $10.4 billion, according to Reuters Estimates. Results included $485 million in Visa gains. Average loans grew 19% and core deposits increased 9%.
“Despite a weakening economy, the continued downturn in housing and expected higher charge-offs, this was a remarkably strong quarter,” Chief Executive John Stumpf said.
San Francisco-based Wells Fargo set aside $2.03 billion for credit losses, nearly triple the year-earlier level, and net charge-offs more than doubled to $1.53 billion.
Despite the housing slump, mortgage applications totaled $132 billion, soaring 45% from the fourth quarter. Wells Fargo has a reputation as a conservative mortgage lender.
In other bank earnings, East West Bancorp Inc., the biggest bank serving the Chinese American community in the U.S., reported that first-quarter profit fell 88%.
Net income fell to $5.04 million, or 8 cents a share, from $42.1 million, or 68 cents, a year earlier, the Pasadena-based bank said. Analysts on average had expected 47 cents, according to Reuters Estimates.
Results included a $55-million write-down for loan losses, and the bank also withheld its 2008 forecast, citing uncertainty in the economy and the real estate market.
East West shares fell $1.69, or 10.7%, to $14.16.