Categorised in: Business
Fourth-quarter results for two of America’s largest banks highlight JPMorgan Chase’s resilience and Wells Fargo’s continued befuddlement.
One-time accounting adjustments due to the new tax law obscured the picture somewhat. JPMorgan took a $2.4 billion write-down, while Wells Fargo booked a one-time $3.4 billion tax gain. But it isn’t hard to look past these one-off items to underlying business trends, which were mostly positive at JPMorgan but not at Wells.
JPMorgan reported decent overall loan growth, with total loans outstanding rising 4% from a year earlier at the end of the fourth quarter. That is down from a 7% pace in 2016, in line with the industry trend of slowing loan growth. JPMorgan continued to see strong performance in certain key businesses, with commercial and industrial loan balances up 6% in the fourth quarter and average credit-card loan balances up 5%.
Wells Fargo, by contrast, saw total loans decline by 1% from a year earlier. A deliberate pullback from auto lending contributed to the fall, but weakness was broad-based, with domestic commercial and industrial loan balances falling 1% and credit-card loans rising by just 3%. It seems likely that Wells Fargo’s tarnished brand from repeated sales-practice scandals is at least partly to blame.
JPMorgan also was hit by $273 million of combined trading and credit losses related to a single client, South Africa-based Steinhoff International Holdings, and it saw a sharp 34% decline in fourth-quarter fixed-income trading revenue. Despite all this and the tax charge, it still managed to post a respectable 10% return on equity for the full year, a testament to the bank’s well-diversified business model.
Like most banks, JPMorgan is also getting substantial help from higher interest rates. Incredibly, though, Wells Fargo still is failing to benefit from this—its net interest margins fell, both from a year earlier and the prior quarter. The bank’s deliberate strategy of holding more long-term assets is ill-suited to the current environment, in which short-term rates are rising but long-term rates have barely budged.
The combination of bad past practices and bad past decisions are weighing down Wells Fargo. Investors feeling bullish on the economy and rates have plenty of other banks to bet on, JPMorgan being among the strongest.
Write to Aaron Back at firstname.lastname@example.org