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Banks' earnings hit record

NEW YORK — JPMorgan Chase and Wells Fargo, bellwethers for the banking industry, reported record earnings Friday, but those numbers masked troubling declines in revenue.

Revenue fell slightly at both banks, and the earnings gains came largely from slashing expenses and related measures. JPMorgan socked away less to cover potential lawsuits and released some of the money set aside for bad loans. Wells cut back on office space.

JPMorgan made $6.1 billion in the first quarter, after stripping out payments to preferred shareholders, up 34 percent from the $4.6 billion it made a year ago. Revenue totaled $25.8 billion, down 3 percent from a year earlier.

At Wells Fargo, profit was $4.9 billion, up 23 percent from a year earlier, while revenue slipped 2 percent to $21.3 billion.

The results show that in an era of sluggish loan demand and increased government regulations, banks must stay lean if they want to boost earnings.

For both banks, analysts homed in on a slowdown in the mortgage business. For the past several quarters, the banks have enjoyed a boom in mortgage refinancings as homeowners lined up to take advantage of low interest rates. That pace now appears to be slowing, if not stalling.

At JPMorgan, mortgage applications fell about 8 percent over the quarter to $60.5 million. They were also down about 8 percent at Wells — to $140 million. Compared with a year earlier, applications at JPMorgan were up just 1 percent. For Wells, however, applications were down 25 percent.

Standards for getting a mortgage are still tight. Some homeowners might not qualify for a refinancing because of changes to their personal finances, and others might not be able to afford one.

When homeowners refinance their mortgage, they get a lower interest rate that helps them save money over time. But getting a refinanced loan also can cost money up front, in fees to the bank.

The mortgage business is also less profitable than it has been in recent quarters. More lenders are competing for mortgage business, meaning some banks have to offer lower interest rates to home buyers.

In the quarter, JPMorgan slashed expenses by 16 percent and cut nearly 5,300 jobs, or about 2 percent of its workforce. It has said that it is trimming jobs in the unit that deals with troubled mortgages, as fewer homeowners are behind on their loans. It is also installing new technology in branches that can replace workers.

Wells trimmed expenses 5 percent, cutting down on office space and using new technology to be more efficient. It's also enjoying lower expenses because in January, it and other banks settled government accusations that they had wrongfully foreclosed on some homeowners. Wells had been spending about $125 million a quarter for staffing and consultants to review individual foreclosures.

Over the year, the bank added about 9,400 jobs, an increase of 4 percent. Last year, it was the only megabank to add jobs instead of cut them.

Banks' earnings hit record 04/12/13 [Last modified: Friday, April 12, 2013 10:04pm]
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