After the recession disrupted every facet of the U.S. economy, analysts have waited for the return of positive indicators. According to one train of thought, real growth will appear on the horizon when banks begin lending at pre-recession levels. Friday earnings reports of JPMorgan (NYSE:JPM) and Wells Fargo (NYSE:WFC) suggested that day has yet to arrive, leading observers to wonder whether the biggest banks can drive the comeback.
Overall, earnings were up at both banks, though revenues declined slightly. JPMorgan posted a 33 percent increase ($1.59 per share), while Wells Fargo showed a 22 percent jump in earnings over the first quarter of 2013 ($o.92 a share). Both figures exceeded industry expectations and calmed fears that the banking giants were going to disappoint investors (shares dipped slightly by the end of Friday’s trading).
Yet the drop in revenues were attributed to a slowdown in the mortgage business. Government incentives (via attractive refinancing terms) had fueled the latest round of profits from mortgages. JPMorgan CEO Jamie Dimon suggested that terms were too strict to encourage borrowers — and that qualified candidates were not being approved. Nonetheless, Dimon forecast a period of growth ahead, saying that “new home purchases are starting to come back.” How much the big banks are willing to drive that trend is another story…
John Stumpf, Wells Fargo’s chief executive, agreed that the most activity was in credit card and car loans. Stumpf predicted that “you will see different loan categories [i.e. mortgages] start to grow” in the coming quarter. Neither Stumpf nor Dimon presented a strategy suggesting they had plans in place to increase mortgage business.
Unfortunately, that would keep the burden on government initiatives. The Federal Housing Finance Agency will try to increase awareness of borrower options via the Home Affordable Refinance Program. Analysts are skeptical that the efforts of HARP will succeed where the banking sector hasn’t, yet there are negative connotations connecting the biggest banks and the mortgage industry. Bank of America (NYSE:BAC), for example, has been bruised over its consumer mortgage business. The big U.S. banks will need to overcome that weakness to increase profitability.