A pair of the largest U.S. banks reported that profits in the first quarter fell due to the housing downturn but they still managed to beat Wall Street analysts' expectations sending shares higher.
JPMorgan Chase & Co. reported its profit fell nearly 50 percent while west coast lender Wells Fargo & Co. said profit declined 11 percent, both citing rising failed loans as a culprit.
The banks were able to weather the storm better than their competitors who also reported earnings this week. Wachovia Corp. and Washington Mutual both reported large losses due to falling houses and credit markets.
Investors were pleased with the results, sending shares of JPMorgan up 6.7 percent to $44.96 while Wells Fargo rose 4.3 percent to close at $29.01.
JPMorgan, the third largest U.S. beat expectations despite writing down $5.1 billion in assets linked to mortgages and other loans.
Profit at the New York-based bank for the three months of 2008 was $2.37 billion, or 68 cents per share. A year earlier in the same quarter the bank earned $4.79 billion, or $1.34 per share. Revenue fell 11 percent to $16.9 billion. Analysts had predicted a profit of 64 cents, according to a poll from financial information provider Thomson First Call. Revenue also matched estimates.
Our earnings this quarter were down significantly as market conditions and the credit environment remained challenging, said Jamie Dimon Chairman and Chief Executive Officer.
The bank also tripled the funds it sets aside for credit losses on a managed basis. It now holds $5.11 billion compared to $1.6 billion a year ago.
JPMorgan announced in mid-March that it planned to buy investment bank Bear Stearns, which nearly went bankrupt due to its heavy investments in illiquid asset-backed securities. JPMorgan initially agreed to by the bank at a $2 per share fire sales price but later raised it to $10 per share, or about $1.2 billion in stock, after an outcry from Bear Stearns investors.
Dimon said he expects continued weakness in the economic environment and stress for capital markets.
These factors have affected, and are likely to continue to negatively impact, our firm's credit losses, overall business volumes and earnings -- possibly through the remainder of the year, or longer, he said. The executive believes the company was prepared to successfully position itself following the downturn.
Wells Fargo & Co., the fifth biggest U.S. bank and second largest home lender reported that net income rose 11 percent to $2 billion, or 60 cents per share compared with $2.24 billion, or 66 cents per share, in the same quarter a year ago. Revenue grew 12 percent to $10.6 billion.
The result beat analyst profit expectations of 57 cents per share according to survey by Thomson Financial.
During the quarter the San Francisco-based bank also said it set aside $2 billion for possible loan losses.
We may not have seen the last of the challenges for this cycle, warned Wells Fargo Chief Executive John Stump.
The bank charged off $1.53 billion worth of loans that won't be fully repaid. In the previous quarter the bank charged off $1.21 billion.
Home-equity loan charge-offs rose 58 percent from the previous quarter to $438 million. The number of customers at least 60 days behind in payments were 1.9 percent as of March 31, versus 1.7 percent in the prior quarter.
Applications for mortgages grew 45 percent from the previous quarter.