Wall Street staged a comeback in the first quarter, as trading
and investment-banking businesses shone as bright spots in the
earnings of the country's two most valuable banks.
Those businesses drove J.P. Morgan Chase & Co. to rising
profit, while they weren't enough to prevent rival Wells Fargo
& Co. from posting its first profit decline in more than four
years. Still, the San Francisco firm saw strong growth in its
investment banking, an area Wells Fargo has been ramping up in
recent years.
The two largest U.S. banks by market value both reported Tuesday
that revenue rose in the first quarter. But J.P. Morgan, which has
much larger trading and investment banking businesses, also
reported rising profit, while San Francisco-based Wells Fargo saw
its profit slip for the time since 2010.
J.P. Morgan, the nation's largest bank by assets, has at times
been overshadowed by Wells Fargo, which has been since 2013 the
largest bank in the U.S. by market value. On Tuesday, J.P. Morgan
bounced back, with its shares trading at a 15-year high in
afternoon trading.
The New York bank run by Chairman and CEO James Dimon said
first-quarter profit rose 12% due in part to strong trading
results. The net income figure of $5.91 billion eclipsed Wells
Fargo's profit figure of $5.8 billion and beat analysts'
expectations. J.P. Morgan shares rose 2.4%.
More active trading and a pickup in mergers helped drive J.P.
Morgan's performance, a confluence of events that hasn't happened
often recently as trading businesses struggled with low levels of
activity and tougher regulations.
J.P. Morgan's corporate and investment bank posted revenue of
$9.58 billion, up 8% from the first quarter of 2014 and 30% from
the fourth quarter. The bank's other three major business units saw
revenue rise 2%-7%.
The results at the two big banks, which kick off earnings season
for financial firms, signal that while the consumer is getting
stronger slowly, corporations are brimming with confidence and
investors shifted their portfolios in the first quarter in
anticipation of rising interest rates in the U.S.
In response to the twin earnings releases, trading and
Wall-Street focused firms like Goldman Sachs Group Inc. and Morgan
Stanley saw their shares rise, while other banks with a large
consumer presence like M&T Bank Corp. and U.S. Bancorp
fell.
It was only the second time in the past seven quarters that J.P.
Morgan's earnings were better than analysts expected. Revenue rose
4.1% to $24.82 billion. Analysts had expected $24.49 billion.
The strong quarter could quiet critics for now who had been
calling on J.P. Morgan to analyze whether it would perform better
and be worth more if it broke up into smaller pieces. Mr. Dimon
said the bank's first-quarter results show its "mix of businesses
continues to work well, " according to a memo sent Tuesday to J.P.
Morgan employees reviewed by The Wall Street Journal.
Trading revenue increased 9% to $5.67 billion from the first
quarter of 2014 and included a 4.5% rise in bond-trading revenue
and a 22% rise in stock-trading revenue. Global advisory revenue
related to mergers and acquisitions was the strongest first quarter
in the bank's history, rising 42% from a year ago and 25% from the
fourth quarter.
"Economies are strengthening, CEOs are continuing to gain
confidence and corporate balance sheets are healthy," investment
bank chief Daniel Pinto wrote in an employee memo reviewed by The
Journal.
Wells Fargo said Tuesday its first-quarter earnings fell 1.5%,
the first profit drop in more than four years, as the nation's
fourth-largest bank by assets continued to face pressure on its
lending margins.
Wells Fargo executives point out that consumer businesses can
sometimes trail investment banking and trading units in the early
part of the year. For instance, mortgages are typically slower
since people aren't buying homes when it is colder and people pay
down credit card balances after holiday shopping.
"We wouldn't extrapolate to say consumers are feeling worse,"
Chief Executive John Stumpf said in an interview. It's just the
nature of seasonality, he added.
Among big investors, the first quarter tends to be strong since
many firms come into the year with new money to invest and
different ideas to execute.
It was also a "busy quarter" with capital raising and advice
needs of companies, said Wells Fargo Chief Financial Officer John
Shrewsberry. "It was not extraordinary or outsized for Wells Fargo
but good for our clients because a lot was going on," he said.
Mr. Stumpf added that Wells Fargo has around 90 different
businesses and can lean on different ones. "We'll run the business
according to how we think it should be run for our customer, our
team and our shareholders and others....We take a 163-year view of
this stuff" referring to the bank's founding in 1852.
Wells Fargo and other big banks could see a boost in coming
years if they can gain business once claimed by GE Capital, the
giant General Electric Co. unit that was recently put on the block
to be sold . Wells Fargo's commercial real estate unit could get a
more immediate boost when the lender closes its deal with
Blackstone Group LP and others to buy a $26.5 billion portfolio of
office buildings and commercial real estate debt from GE expected
by the third quarter, Mr. Shrewsberry said on a conference call
with analysts.
Fees from investment banking, an area which Wells Fargo has been
ramping up in recent years, totaled $445 million, a 36% increase
from $327 million in the first quarter of 2014.
Still, Mr. Stumpf warned that Wells Fargo doesn't consider the
investment bank a stand-alone business but rather "another
solution, another product, another service" for existing customers.
He emphasized the bank won't take on excess risk in an attempt to
increase market share.
The San Francisco-based bank reported a profit of $5.8 billion,
or $1.04 a share. That was down from a record profit of $5.89
billion, or $1.05 a share, in the same period of 2014. But earnings
were better than the 98 cents per share expected by analysts polled
by Thomson Reuters. Shares fell about 1%.
Write to Peter Rudegeair at peter.rudegeair@wsj.com and Emily
Glazer at emily.glazer@wsj.com
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