The nation’s biggest banks are expected to report their latest quarterly results this week, providing a glimpse into how their businesses and the U.S. economy are faring.
Wells Fargo, JPMorgan Chase & Co. and Citigroup will kick off third-quarter earnings season Tuesday. Bank of America follows Wednesday.
Here are five things to look for.
1. How’s the mortgage business?
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The rise in interest rates that began last year has led to a drop in mortgage revenue at banks, including Bank of America and Wells Fargo. That’s because those higher rates caused a big dive in demand to refinance mortgages.
For banks such as Wells Fargo, the biggest U.S. home lender, the decline has been costly: For example, Wells’ overall mortgage originations, including those for refinancing, fell by $65 billion in the second quarter from the same period a year ago.
Because of Wells Fargo’s large mortgage business, the lender is seen as a barometer for the mortgage industry as a whole. So you can be sure that analysts and investors will be paying close attention to the latest mortgage figures.
2. Is Bank of America out of the legal woods yet?
Since the financial crisis, Bank of America has been dogged by litigation, mostly stemming from its 2008 purchase of mortgage giant Countrywide Financial Corp. But in August the bank reached a milestone with its $16.65 billion settlement that resolves a variety of federal and state probes, including those into faulty mortgage-backed securities practices.
The costs of that settlement will impact Bank of America’s third-quarter earnings. Wall Street’s consensus estimates are for the bank to record a loss of 9 cents a share.
Bank of America, which has spent more than $70 billion over crisis-era legal matters, has said the settlement resolves its biggest legal issue lingering since the crisis.That being said, investors will be listening for any news from the bank on its outstanding legal issues.
3. Where is Bank of America’s stock price headed?
In the wake of that settlement, investors are looking for Bank of America’s stock price to grow as crisis-era litigation becomes less of a drag on the stock.
Its shares closed at $16.40 Monday, 88 cents higher than where they closed Aug. 20, the day before the settlement was announced. But it’s still far below the more than $50 at which they traded pre-crisis.
Financial results that are promising and no major legal news Wednesday could help the stock recover.
4. More job cuts coming?
Investors will be watching out for more cost-cutting by banks, such as through layoffs. In the past year, banks have cut many jobs, especially as refinancing demand waned. By the end of the second quarter, Bank of America shed 24,000 employees over the year before; Wells Fargo, 10,800.
5. Is revenue growth still weak?
Banks have cut costs as they struggle to grow revenues at a time when many businesses remain hesitant to borrow in a still-recovering economy. In the second quarter, Wells posted revenue of $21.1 billion, down 1.5 percent from a year earlier. Bank of America’s revenue declined 4 percent from a year earlier.
Last week, Bank of America released a study showing small-business owners remain hesitant to make business investments in the near term.