Bank of America and Wells Fargo posted lower quarterly profits and increased reserves to cover bad loans from their stressed energy portfolios.
Advertisement
Net charge-offs jumped by $178m to $886m versus the year ago level. The bank was able to beat both earnings per share (EPS) and revenue estimates for the quarter amid shaky market conditions. Wells Fargo, Â the biggest US home lender, agreed in February to pay $1.2 billion to resolve USA government claims related to its Federal Housing Administration mortgage practices.
BlackRock Inc (BLK) rose 21 cents to $348.50 after the investment and financial services provider said revenues in the first-quarter ending in March fell 4% from a year ago to $2.62 billion.
“Wells Fargo’s first quarter results reflected the benefit of our diversified business model as we managed challenges presented by a volatile operating environment for our industry”, the bank’s chief executive John Stumpf said in a press release. “As always, we are focused on loan and deposit growth and managing expenses”, said chairman and CEO Brian Moynihan in prepared remarks. Bove said Wells Fargo is being hurt by the oil crash a bit more than its peers because many of its loans are to riskier companies with junk credit ratings.
“The increases in losses and nonperforming loans in the first quarter were primarily due to continued challenges in the oil and gas portfolio”, Chief Risk Officer Mike Loughlin said in a statement.
Of the three, Wells Fargo, reported declines across its three businesses, while JP Morgan and BoA reported growth in their consumer businesses, albeit not enough to offset the provisions within its trading divisions.
Wells Fargo has some of the riskiest exposure among the banks.
The banks’ exposure to energy clients was conspicuous, with more capital being put aside for expected losses in loans that won’t be paid back by oil drillers, refineries and other service providers. Last year, during this time, the bank reported a net income of $5.8 billion, or $1.04 per share and in the fourth quarter of 2015 it reported $5.6 billion in income, or $1.00 per share.
On the bright side, first-quarter results from banks, which started coming out this week, haven’t been quite as bad as many analysts feared.
Investors will get some insight on Wednesday, when earnings season kicks off with JPMorgan Chase & Co (JPM.N), the country’s largest bank.
Big bank trading desks were slammed as investors sat out on what’s usually Wall Street’s strongest quarter, when hedge funds and asset managers strategize investments for the coming year.
Wells Fargo & Company (WFC) shares closed at price of $49.03 by scoring 2.64% during its last trade.
Advertisement
Long considered a bellwether for the housing market due to its robust mortgage portfolio, Wells said its mortgage applications rose 20% to $77 billion, while originations fell 6% to $44 billion. Our capital remained very strong with Common Equity Tier 1 (fully phased-in) of $142.7 billion.
