NEW YORK — Are banks back?
No big bank was supposed to utter the words "record" and "profit" in the same sentence this year. But Wells Fargo said Thursday it earned about $3 billion for the first quarter — its highest income ever, and twice what analysts predicted.
The unexpected peek into the bank's official results, which will be released in two weeks, was a welcome sign of improvement in one of the most troubled and critical industries in the U.S. economy.
Money is cheap and mortgage applications are surging, thanks in large part to unprecedented efforts in Washington to breathe life back into the financial industry. The government has been pumping money into the financial system, slashing interest rates, and buying and guaranteeing more types of assets than ever before.
Other banks across the country are likely benefiting, too, from near-zero borrowing costs and a rebound in the mortgage lending business. If more banks report that these advantages are offsetting loan losses, the stock market's yearlong panic over the fate of the banking industry should alleviate.
"The mind-set is: The banks cannot do well," said Richard Bove, a banking analyst at Rochdale Securities. "But the banks are in a stronger position than anyone expected."
It's important to remember, though, that San Francisco's Wells Fargo has been among the heartiest of the big banks throughout the financial crisis. Most analysts are still predicting quarterly losses for banks like Citigroup Inc. and Morgan Stanley, which also release their results this month. They will likely be weighed down by the souring debt and exotic credit products on their books that have gotten into trouble.
Wells Fargo's own chief financial officer even warned against getting too excited about the results. "It's premature to conclude the economy has turned," Howard Atkins said.
Atkins did say the bank was seeing a clear benefit from the government's actions to bring interest rates down. "All I can tell you is, we're seeing a lot of business."
During the first quarter, Wells Fargo extended over $100 billion in mortgage loans after applications soared 64 percent from the final quarter of 2008. A huge number of the applications came in during March, suggesting the growth will carry over into the second quarter.
While about three-quarters of Wells Fargo's mortgage activity was customers refinancing loans to lock in better rates, about a quarter came from new-home purchases. Home-buying activity is now about the strongest it's been since the housing market collapsed in 2007, Atkins said.