Are Bank Investors About to Be Disappointed?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Last year was an excellent one for the U.S. banking industry, as they collectively raked in profits of more than $141 billion, a close second to the pre-crisis total of $145 billion. For some of the biggest banks, such as Wells Fargo (NYSE: WFC  ) and JPMorgan Chase, (NYSE: JPM  ) mortgage writing had much to do with that increased income.

If investors are looking to see more of the same as banks begin reporting first-quarter earnings later this week, however, some analysts are predicting sober news: The mortgage party might just be over.

Et tu, Wells Fargo?
It's hard to believe that mortgage maven Wells Fargo could suffer from mortgage-origination malaise, but some experts are warning of a waning in even that mortgage giant's pipeline. JPMorgan analyst Vivek Juneja notes, however, that the slowdown won't be as damaging to Wells, despite the decline in its home refinancing business.

The reasons? Junega sees Wells' putback expenses diminishing, and mortgage servicing revenues increasing. This puts Wells in a much better position than Bank of America (NYSE: BAC  ) , which has not only fumbled the ball in the mortgage origination game, but has been drastically reducing its stable of mortgage servicing rights.

B of A, Citi seen as works-in-progress
As for Citigroup (NYSE: C  ) , which also sat out the mortgage mini-boom, the megabank is regarded as still reinventing itself, much the same as B of A. Obviously, the mortgage slowdown won't affect these banks too much, but there's also not much going on except cost-cutting, so don't expect a lot of excitement in the first earnings report of the year.

One piece of good news regarding mortgages does affect Bank of America, however. The bank has seen a reduction in its troubled loan servicing workload and has been able to cut staff and shutter offices as the decline continues, helping to pad the bottom line by cutting expenses.

A big deal? Probably not
For Wells, investors have been forewarned by CFO Tim Sloan that first-quarter revenues from mortgage activity would probably decline. The bank has been aware of the fact that the refinancing boom may be petering out, and it has taken steps to replace lost revenue with portfolio lending -- making loans that stay on the bank's own books.

Concentrating on this type of lending will be aided by the enormous branch network Wells acquired with its takeover of Wachovia in 2008, as well as the lack of other, similarly ambitious lenders. This combination has helped the bank dominate the markets of big cities like Manhattan and San Francisco. So, even if the mortgage earnings a little off in the beginning, Wells looks poised to more than make up for it as the year progresses -- which is good news for investors.

Wells Fargo's dedication to solid, conservative banking helped it vastly outperform its peers during the financial meltdown. Today, Wells is the same great bank as ever, but with its stock trading at a premium to the rest of the industry, is there still room to buy, or is it time to cash in your gains? To help figure out whether Wells Fargo is a buy today, I invite you to download our premium research report from one of The Motley Fool's top banking analysts. Click here now for instant access to this in-depth take on Wells Fargo.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2353227, ~/Articles/ArticleHandler.aspx, 9/29/2016 1:28:53 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,177.62 -161.62 -0.88%
S&P 500 2,153.27 -18.10 -0.83%
NASD 5,274.64 -43.91 -0.83%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/29/2016 1:13 PM
BAC $15.21 Down -0.18 -1.14%
Bank of America CAPS Rating: ****
C $46.20 Down -0.68 -1.44%
Citigroup CAPS Rating: ***
WFC $44.45 Down -0.86 -1.90%
Wells Fargo CAPS Rating: ****