Ma­jor banks seek wider mar­gins as Fed mulls hike

The Pak Banker - - COMPANIES/BOSS -

The big­gest US banks likely will be happy to part with com­pressed in­ter­est mar­gins as they look to grow bet­ter than the 2014 fourth-quar­ter and full-year earn­ings that they're re­port­ing this week. On Wed­nes­day be­fore the mar­ket opens, JPMor­gan Chase and Wells Fargo will be the first big banks to re­port. Both lenders are ex­pected to post mod­est Q4 earn­ings-per-share gains com­pared to a year ear­lier, with JPMor­gan at $1.31 gain­ing 1 cent and Wells Fargo gain­ing 2 cents to $1.02. Q4 rev­enue for the New York­based JPMor­gan is ex­pected to fall 1.9% to $23.6 bil­lion, while fore­cast­ers an­tic­i­pate the San Francisco-based Wells Fargo to post a 2.7% rev­enue in­crease to $21.2 bil­lion.

The Fed­eral Re­serve's near-zero in­ter­est-rate en­vi­ron­ment over the sev­eral years since the fi­nan­cial cri­sis has made big banks more than ready to re­lax squeezed net in­ter­est mar­gins. The key is rais­ing rates paid on de­posits a lit­tle less than they raise rates on loans. While the U.S. un­em­ploy­ment rate fell in De­cem­ber to 5.6% - an in­cen­tive to Fed pol­i­cy­mak­ers to raise rates - a stronger dol­lar and col­laps­ing oil prices could blunt the in­cen­tive and de­lay the Fed's in­ten­tion to raise rates in April as Fed watch­ers have sug­gested.

Although JPMor­gan's se­cu­ri­ties trad­ing rev­enue will be un­der the mi­cro­scope due to Wall Street's re­cent vo­latil­ity, growth in its credit card unit, au­to­mo­bile loans and other com­mer­cial loans will pro­vide an­a­lysts and in­vestors a bet­ter idea of JPMor­gan's abil­ity to gen­er­ate EPS growth, ac­cord­ing to Christo­pher Mu­tas­cio, an an­a­lyst at Keefe, Bruyette & Woods. "Trad­ing is not a huge piece of the rev­enue pie for JPMor­gan," he said. "I think peo­ple pay too much at­ten­tion to that." Com­ing off a se­ries of lit­i­ga­tion set­tle­ments over the past year or so, in­clud­ing a $13 bil­lion pact with the Jus­tice Depart­ment over mort­gage-backed se­cu­ri­ties, JPMor­gan's stock still man­aged to rise 7% last year. Re­cently, the stock of the big­gest U.S. bank has fallen 6% amid a re­cent Gold­man Sachs re­port that high­lighted the ben­e­fits of break­ing JPMor­gan up into four smaller com­pa­nies.

An 800-lb. go­rilla in the mort­gage field, with less ex­po­sure to a fluc­tu­at­ing stock mar­ket, Wells Fargo saw its shares soar 20.7% in 2014. An­a­lysts are look­ing to see if Wells' earn­ings growth is sus­tain­able with new loans, mort­gage orig­i­na­tions and a wider net­inter­est mar­gin.

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