Bank Watch

5 things to watch when Wells Fargo, BofA report earnings

Wells Fargo is scheduled to report its latest quarterly earnings Tuesday, helping kick off earnings-report season for the nation’s biggest banks. Bank of America will report its results Wednesday.
Wells Fargo is scheduled to report its latest quarterly earnings Tuesday, helping kick off earnings-report season for the nation’s biggest banks. Bank of America will report its results Wednesday. Bloomberg

The largest U.S. banks, including Bank of America and Wells Fargo, will reveal how they performed in the second quarter of this year when they report their financial results this week.

San Francisco-based Wells Fargo and New York-based JPMorgan Chase & Co. will release results Tuesday morning, launching earnings season for banks. Charlotte-based Bank of America will report its results Wednesday morning.

Here are five things to look for as the numbers come out:

1. Did revenue grow?

Banks have been finding it tough to increase revenue, in part because the Federal Reserve has kept interest rates low since the financial crisis. Low interest rates hurt banks’ revenues by limiting what they can earn on loans. It remains unclear when the Federal Reserve will raise rates, but Fed Chairwoman Janet Yellen said Friday she expects the regulator to raise its benchmark interest rate this year.

Banks also are facing many consumers who remain hesitant to take on more debt, constraining lenders’ loan growth. Bank of America, Citigroup and JPMorgan, three of the four largest U.S. banks by assets, posted lower overall revenue over the past 12 months compared with the same period the year before, according to Bloomberg data.

Wells Fargo, the fourth-biggest U.S. bank, whose East Coast hub is in Charlotte, posted about a 2 percent rise in revenue over the same period.

2. Did banks cut more jobs?

Amid the challenges to growing revenue, banks have sought to reduce expenses, including by cutting jobs and closing branches.

Combined, large U.S. banks slashed thousands of jobs by the end of the first quarter compared with the same period a year earlier. Those reductions come at the same time banks say they are having to increase compliance and cybersecurity costs.

More job cuts could be coming. This year, Wells Fargo began a companywide study to streamline five major departments, an initiative that could lead to job reductions.

Also, Wells Fargo and Bank of America have continued in recent years to lay off employees in their operations that work with troubled mortgage borrowers, as those banks have seen declines in such loans.

3. Is their mortgage business improving?

Investors and analysts continue to closely monitor the home-lending businesses of large banks such as Wells Fargo and Bank of America, which are major mortgage players, because banks’ mortgage business has taken a hit for a variety of reasons in recent years.

One factor in the drop: lower demand from borrowers to refinance home loans after interest rates began rising in 2013, which caused a decline in financing revenue for banks.

The mortgage industry has cited other challenges to making more loans. In a May speech, David Stevens, president of the Mortgage Bankers Association, pointed to federal mortgage rules enacted since the financial crisis as making it harder for many consumers to get mortgages.

Nationwide, mortgage originations, including loans for purchases and to refinance, fell to $1.12 trillion in 2014, down from $1.85 trillion in 2013, according to the trade group. It estimates $1.28 trillion in originations this year.

4. Will there be new legal announcements?

Banks have resolved a large amount of litigation stemming from the financial crisis, but they have not put all of their crisis-era legal woes behind them.

Bank of America is appealing a federal judge’s order that it pay $1.27 billion in civil penalties. The order came after a jury in 2013 found the bank liable for fraud over mortgages made under a program operated by Countrywide Financial Corp., which the bank bought in 2008.

Wells Fargo continues to deal with a civil lawsuit that the U.S. government filed against it in 2012 that accuses it of “reckless” origination of government-backed home loans.

In February, Wells announced that discussions to reach a resolution in the case “did not result in an acceptable final agreement” and that the bank and government are “again engaged in discovery.”

5. How’s the economy doing?

Banks’ quarterly financial results offer a chance to glean insight into how the U.S. economy is faring, since the lenders have millions of customers and multiple lines of businesses.

Just last month, Bank of America executive Dean Athanasia, whose roles include co-head of consumer banking, described consumer spending as “a little bit sluggish,” especially when it comes to credit-card purchases.

Although consumers have experienced lower gasoline prices, they are not spending that money elsewhere, he said; instead they are saving it or using it to pay down debt.

Deon Roberts: 704-358-5248, @DeonERoberts