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Two of the largest U.S. financial institutions kicked off third-quarter results for big bank earnings today, giving us a peek at how they fared amid tough times for both firms.
Wells Fargo & Co (NYSE: WFC) is in the midst of slashing headcount in its mortgage unit by some 1,800, and JPMorgan Chase & Co (NYSE: JPM) is tangled up in settlement talks with the U.S. Justice Department.
The short story on the banks' earnings: WFC earnings had to use a lot of "accounting gimmickry" to beat earnings-per-share (EPS) expectations, and JPM earnings show the first quarterly loss since Jamie Dimon came on board (he started in 2004 as chief operating officer, then moved to chief executive officer in 2005).
JPM didn't even take a loss in the financial crisis…
Both banks' stocks have slipped about 3% since trading at 52-week highs in July. JPM shares rose 0.63% in early afternoon trading Friday amid the Dow's near 100-point gain, while Wells Fargo dipped 0.19%
Here's a closer look at these big banks' earnings.
Big Bank Earnings: WFC
Wells Fargo reported record Q3 profits thanks to fewer loan defaults and lower expenses, which helped the largest U.S. home lender overcome weakness in its mortgage lending unit.
But, investors beware: While Q3 numbers beat expectations, it wasn't a quality beat.
As ZeroHedge wrote, "In order to 'beat' the EPS of $0.97, with an EPS $0.99 print, or $5.6 billion, the bank was forced to dig deep in its bag of accounting gimmickry and pull out a whopping $900 million in loan loss reserve release, driven by a $1 billion net charge off number, offset by just $0.1 billion in provisions: at least the latter number was not negative. This was the highest release since 2011 and a surge compared to recent trends."
So, take the Q3 WFC earnings with a grain of salt:
- Q3 profit jumped 13%, marking the 15th consecutive rise in quarterly profits.
- For the 10th straight quarter, the San Francisco-based bank reported a new record in profits.
- Net income increased to $5.58 billion or $0.99 per share, two cents ahead of estimates. That was up from $4.94 billion or $0.88 a year ago, and up from $5.5 billion or $0.98 per share in the prior quarter.
- Revenue slipped to $20.5 billion from $21.4 billion.
- The bank received $87 billion worth of home loan applications in Q3, a sharp decline from $188 billion in the same quarter a year ago.
- Mortgage originations totaled $80 billion, down from $139 billion. The bank attributed the slip to a decline in refinancing.
- Q3 home lending originations were $80 billion, compared with $112 billion in the prior quarter.
- Credit losses were $975 million, compared with $2.4 billion in the year ago quarter.
- Bank deposits were up 5% over year-over-year to $940 billion.
- For the first nine months of 2013, net income was a record $16.3 billion, or $2.89 per share, up from $13.8 billion or $2.45 per share for the same period in 2013.
Big Bank Earnings: JPM
JPMorgan reported its first loss under Chief Executive Officer Jamie Dimon after shelling out $9.2 billion to cover mushrooming litigation and regulatory probes.
"In this highly charged and unpredictable environment, with escalating demands and penalties from multiple government agencies, we thought it was prudent to significantly strengthen" the bank's legal reserves, Dimon said in a statement. "While we expect our litigation costs should abate and normalize over time, they may continue to be volatile over the next several quarters."
Other JPM earnings details to note:
- Third-quarter loss was $380 million, or $0.17 per share, compared with a profit of $5.71 billion, or $1.40 a year ago.
- Stripping out one-time costs, JPM's earnings were $5.8 billion, or $1.42 a share, better than Wall Street analysts' projections of $4.65 billion or $1.21 a share.
- Revenue fell to $23.9 billion, from $25.9 billion in the same period a year ago. That was mostly in line with analysts' estimates of $24.06 billion.
- Loan originations were $40.5 billion, down 14% from a year ago. Yet, income from mortgage banking was $705 million for the quarter, up 13% from the year earlier period.
- Net interest margin, a key metric that measures profits made through lending, fell 2.18%, down from 2.43% a year ago.
- Deposits increased 10% to $456.9 billion.
- Credit card business sale volume rose 11% to $107 billion, and the number of customers falling behind on credit card payments dipped from 2.15% to 1.69%.
- Profit from the JPM trading unit rose 7% to $476 million.
- Private reporting revenue increased 9% to $1.5 billion.
- Despite slashing costs and headcount, noninterest expenses soared more than 50% from a year earlier.
- In its mortgage business, JPM sees fourth-quarter mortgage banking net charges at about $200 million if current trends continue. If charge-offs and delinquencies continue to trend lower, there will also be continued reserve reductions.
- The New York-based bank sees net interest income to be approximately flat in the near term, with fiscal year adjusted expenses of $59.5 billion to $60 billion.
The Next Earnings to Watch
Next week brings a wide variety of big-name earnings reports from tech giant Intel Corp (Nasdaq: INTC) to Johnson & Johnson (NYSE: JNJ) to American Express Co. (NYSE: AXP) to energy conglomerate General Electric Co. (NYSE: GE).
Don't miss today's top story: Twitter's IPO: #Countmeout
- The New York Times:
JP Morgan Reports Quarterly Loss as It Grapples with Legal Woes
Earnings Preview: Alcoa (AA), Micron Technology (MU), Wells Fargo (WFC), JPMorgan Chase (JPM), Safeway (SW)