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Bad Start for Big Banks

Ian Wyatt

Fourth-quarter earnings season didn’t exactly get off to a sizzling start for the big banks today.

Wells Fargo (NYSE: WFC) – the most profitable big bank in recent years – again reported better-than-expected earnings this morning. However, a slowdown in the company’s mortgage business was a red flag for investors, who punished the stock by driving it down 1.5% in Friday trading.

Here were some of the main takeaways from Wells Fargo’s fourth-quarter earnings report:

  • Profits rose 24% year-over-year.
  • Per-share earnings of 91 cents narrowly edged analyst expectations of 89 cents.
  • Mortgage business slipped. Net interest margin fell to 3.56% from 3.89% a year ago, mortgage initiations fell by 19%, and new mortgage approvals declined 16.5% compared to the same quarter a year ago.

So far, investors seem way more focused on that last bullet point than the first two. The slump in the company’s mortgage business was a rare chink in the armor for a bank that has been thriving of late. Its profits have risen each of the last four quarters, and the stock is up 20% in the last year.

Still, a sign of weakness in the industry’s recent stalwart might not bode well for the remaining big banks. That may be why shares of Bank of America (NYSE: BAC), JPMorgan Chase (NYSE: JPM) and Citigroup (NYSE: C) all fell today.

We’ll know whether the other big banks experienced similar mortgage-related struggles when they report earnings next week.