Charlotte’s two big-bank employers are set to report quarterly earnings, once again shining a light on the health of their businesses and on the U.S. economy as a whole.
Wells Fargo will have the financial industry spotlight to itself when the bank reports its second-quarter results before the market opens Friday. For several quarters, JPMorgan Chase and Wells had reported on the same day to kick off bank earnings season. This time around, JPMorgan is waiting until Tuesday.
Bank of America will follow with its results Wednesday.
Here are five things to watch as the numbers come out:
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1. Will Wells Fargo’s record earnings streak continue?
The San Francisco bank has had 12 quarters in a row where it reported record profits and 17 straight quarters of earnings growth. That means Wells hasn’t slowed down in more than four years.
Analysts predicted the streak would come to an end in April as first-quarter results came out. Instead, Wells posted a record of $5.9 billion, or $1.05 per share.
A sharp decline in mortgage origination has put Wells’ earnings under pressure for several quarters. The consensus estimate is for Wells to report $1.01 per share, bringing both of its streaks to a halt.
2. Did the housing market improve?
As the nation’s largest mortgage lender, Wells Fargo is considered a bellwether for the nation’s housing market. The business has been in decline as slowly rising interest rates have put an end to the wave of mortgage refinancing activity that marked 2011 and 2012.
In April, Wells CEO John Stumpf said the company was optimistic about the spring selling season. He said they’d seen signs that mortgage demand could have a resurgence. But within weeks, Chief Financial Officer John Shrewsberry was walking all that back. The mortgage market was not living up to the hype.
3. Are auto loans the new big thing for Wells Fargo?
With the mortgage business lagging and the economy still in a creep, big banks have struggled to increase their revenue. One bright spot for Wells Fargo has been in auto lending. The bank is the nation’s largest auto lender, taking the mantle from Ally Financial – which was formerly known as GMAC, the financing arm for General Motors.
That means Wells Fargo’s results could also shed light on Americans’ appetite for consumer debt outside of the housing market. Shrewsberry indicated in June that auto loan demand was still strong.
4. How much will Bank of America set aside for legal costs?
The Charlotte bank surprised investors by setting aside an additional $2.4 billion into its legal reserve fund in the first quarter, contributing to another loss in the period. As Bank of America continues to negotiate with the federal government on a mortgage settlement that could reach several billion dollars, the bank’s legal woes could weigh on earnings once again.
5. Will Bank of America say anything about its dividend?
Bank of America shareholders are still in limbo over what will happen to the dividend, which still lags significantly behind its peers. They were due this month for the first dividend increase in five years – from 1 cent to 5 cents per share – but an error in how Bank of America calculated its capital ratios forced the bank to scrap those plans.
The bank’s new capital plan is in the hands of the Federal Reserve. Bank of America has been notoriously tight-lipped about its intentions, but CEO Brian Moynihan will undoubtedly face numerous questions on the matter next week.