Major banks seek wider margins as Fed mulls hike
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.