Earnings season for bank investors officially kicked off this morning with two of the nation's largest lenders reporting third-quarter results. And if there's one unified lesson, it's that traditional banking has once again proven itself to be superior to its sophisticated and debonair Wall Street counterpart.
The nation's largest bank by asset, JPMorgan Chase (NYSE: JPM ) , surprised investors today with its first quarterly loss in nearly a decade. The performance from one of the biggest and most respected financial companies in the world comes on the heels of multiple legal and regulatory battles that continue to weigh on the bank's profitability.
In the third quarter alone, it set aside $9.2 billion to cover future litigation expenses related to the outstanding issues.
Meanwhile, on the other side of the country, the nation's fourth largest bank by assets, Wells Fargo (NYSE: WFC ) , reported yet another quarter of record net income. For the three months ended September 30, the California-based bank earned $5.58 billion, or $0.99 per share, compared to the previous quarter's $5.52 billion, or $0.98 per diluted share.
"Wells Fargo continued to demonstrate strong and consistent financial performance in the third quarter," said Chairman and chief executive officer John Stumpf. "As our economy continues to transition to higher interest rates, our diversified business model and strong risk discipline contributed to record earnings per share along with continued strength in return on assets, return on equity and capital."
The bank reported gains throughout its operations. Core deposits were up by $47 billion. Loans grew by $30 billion. Its net charge-off ratio fell by more than half.
The one area where it struggled -- though, this had been forecasted last month by its chief financial officer Timothy Sloan -- was in its mortgage department. For the quarter, Wells Fargo originated $80 billion in home loans. While this is still considerably higher than the runner-up in this regard -- JPMorgan, for instance, underwrote $40.5 billion over the same three-month stretch -- it nevertheless pales in comparison to the more than $100 billion in originations it achieved in each of the previous seven quarters.
To be fair, the drop-off in mortgages stemmed from higher interest rates. This made itself particularly apparent in the number of people applying to refinance existing mortgages. In the third quarter of last year, 72% of all mortgage applications at Wells Fargo related to refinancing. By last quarter, that number had dropped to 36%.
Despite this decline, it's important to keep in mind that higher interest rates in many cases signify an improving economy, which itself offers a multitude of benefits to a company like Wells Fargo. As CEO Stumpf went on to note, "The improvement in the housing market has been beneficial to our customers and significantly contributed to our broad-based credit improvement in the quarter. We also deepened relationships, resulting in increases in cross-sell across the Company."
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