JPMorgan Chase (JPM) and Wells Fargo (WFC) beat Q1 earnings estimates Friday, but both banks relied on cost cuts and lower loan-loss reserves to help offset weaker revenue and stagnant loan activity.
JPMorgan's embattled CEO Jamie Dimon stated that loan growth in the industry had softened in the quarter as small businesses remained cautious "and are not investing their capital.
JPMorgan and Wells Fargo fell less than 1% on the stock market Friday.
Wells Fargo earned 92 cents a share, up from 75 cents a year earlier and 4 cents above Wall Street's forecast. It was the largest U.S. home lender's 13th straight quarter of EPS growth.
But revenue of $21.3 billion missed analyst forecasts for little change at $21.6 billion.
Wells' home-loan originations dropped to $109 billion from $125 billion in the prior quarter.
Despite soft loan growth and margin pressures, JPMorgan earned $1.59 a share, or $1.41 excluding tax benefits from reduced mortgage loan-loss reserves and lower credit card loan-loss reserves. That was up from $1.19 last year. Analysts had expected $1.39.
JPMorgan's revenue fell 3% from the earlier year to $25.8 billion, due mostly to a slowdown in mortgage banking. Mortgage banking income fell 31% from a year earlier to $673 million.
Investment Banking Strong But investment banking came in on a high note, with net income up 28% to $2.6 billion on revenue of $10.1 billion.
Trading revenue was strong, with $3.8 billion on the fixed-income side and $2.8 billion in equities, each up 50% from Q4 but down in mid-single digits from the prior year.
"Trading was better than expected," said analyst Chris Mutascio of Keefe, Bruyette & Woods.
JPMorgan is the largest U.S. bank by assets. Its asset management income rose 26% over last year to $487 million on revenue of $2.7 billion.
The bank's credit card portfolio also was stronger, with net charge-offs "near historic lows," Dimon said, a sign consumers "are healthier and more confident." But new data out Friday showed consumer sentiment fell in April to a nine-month low.
And whether shareholders are as confident about Dimon's ability to control risk in light of last year's $6.2 billion "London Whale" trading loss is in question. They're mulling whether to recommend that the board strip him of his duties as chairman at next month's annual meeting.
In statements, Dimon vowed to "strengthen our controls and carry out our compliance mission," adding that "it is the top priority for our company.
Meanwhile, JPMorgan's gain on sale margin from selling loans it originated "got crushed," said Mutascio. That margin fell to 1.89% from 2.75% in Q4.
Wells Fargo's, in contrast, was down only slightly, from 2.78% in Q4 to 2.63% in Q1.
Wells' In-House Push Wells is pulling back from buying loans from other originators and focused more on generating higher margin loans in its bank branches, Mutascio said.
Wells' average loans totaled $798 billion, up $29.5 billion from the earlier year. Deposits rose $55.4 billion to $925.9 billion.
Wells' net interest margin, the spread on what it pays on deposits and gets in loans, fell to 3.48% from 3.56% in Q4.
But its credit quality improved, with credit losses of $1.4 billion vs. $2.1 billion in Q4. It was the lowest since Q2 2006. Nonperforming assets fell by $1.6 billion to $22.9 billion from Q4.
Wells' CEO John Stumpf stated that loans and deposits continued to grow "in a challenging economic environment" and noted that expenses were falling.
JPMorgan's consumer banking income fell 12% to $2.6 billion. Commercial banking was flat from a year ago.
Wells and JPMorgan begin a wave of big bank earnings. Citigroup (C) reports on Monday, Goldman Sachs (GS) Tuesday and Bank of America (BAC) Wednesday.
Citi and BofA dipped Friday while Goldman edged higher.