Apr. 11- The first peek at earnings from the banking sector show JP Morgan Chase and Wells Fargo, taking very different approaches in key business lines. Bobbi Rebell reports.
Two banks- two very different strategies- at a critical juncture for the sector, with interest rates poised to finally make real moves higher. JP Morgan- unapologetic about not lowering the bar for loans- despite an 84 percent drop in mortgage lending revenue, and overall profits that fell 19 percent. CEO Jamie Dimon telling reporters- the important thing is that bank is not lowering its lending standards. In other words- they aren't going to chase short term profits by making bad loan decisions. Wells Fargo, which reported record net income, however, has allowed more wiggle room when it comes to its lending standards. Joo-Yung Lee of Fitch Ratings: SOUNDBITE: JOO-YUNG LEE, HEAD OF NORTH AMERICAN FINANCIAL INSTITUTIONS, FITCH RATINGS (ENGLISH) SAYING: "They both have a slightly different strategic focus, you know. Wells- mortgage has always been their bread and butter business. They are one of the largest underwriters of mortgages. So for them I don't think it's going to be a material change in how they are underwriting, but because they have a very deep relationship with their customers, I think they are more comfortable dipping down a little bit." The mortgage business is just plain bad these days. Applications for refinancing fell to their lowest share of total mortgage applications since July 2009 in the week ending April 4. February was the worst month for new home loans since 2000. Wells Fargo is the biggest U.S. mortgage lender, but the slowdown in its home loan business was offset by other business lines, like its wealth management unit, much of which is fee based revenue, not unpredictable commissions. JP Morgan didn't just have trouble on the home front- bond trading revenue plunged 21 percent. And all the biggest banks now face the new Federal Reserve leverage ratio requirements- forcing them to boost their capital. Something Lee says will hurt growth: SOUNDBITE: JOO-YUNG LEE, HEAD OF NORTH AMERICAN FINANCIAL INSTITUTIONS, FITCH RATINGS (ENGLISH) SAYING: "Between the all the regulatory burden they are continuing to have to add infrastructure while at the same time cost saving is one of their biggest measures that they are focusing on but it's very challenging now with very anemic loan growth." But for all the troubles, the stocks remain appealing to investors. FBR's Paul Miller: SOUNDBITE: PAUL MILLER, BANK ANALYST, FBR CAPITAL MARKETS (ENGLISH) SAYING: "I don't think investors really care. Investors are not looking at this quarter, next quarter, or even the third quarter in earnings. What they're looking at is 2015 and 2016 and hoping for higher rates." On the calendar next week: Goldman Sachs, Citigroup and Morgan Stanley.