Banks' old problems kept easing in the first quarter. Their new problems didn't.
That's what analysts expect to hear from JPMorgan Chase & Co. and Bank of America Corp. this week as they kick off quarterly results. The country's two biggest banks by assets are a good measure of the overall health of the country's commercial banks because they are involved in just about every facet of banking, from home lending to securities trading.
Fewer consumer and business loans are going bad, which means these two big banks and others should have been able to reclassify as profits some of the rainy-day funds they've set aside to cover loan losses. That's the old problem that's going away.
But things remain spotty when it comes to finding borrowers and clients to charge for loans and services. That's the new problem that isn't going away. It may be magnified by a volatile quarter for mortgages and investment banking, two of the few areas where big banks made money last year. When they stall, that leaves the industry relying on paper profits.
Weighing on both banks' results: A slowdown in mortgage originations as suggested by data tracking home sales and home loan applications through the quarter. JPMorgan Chase said in its annual report that mortgage fees were on track to decline by as much as 38% in the first quarter.
JPMorgan Chase is scheduled to report earnings on Wednesday. The consensus of eight analysts polled by Bloomberg has it earning $1.17 per share, up from 96 cents per share in the fourth quarter. B of A should earn 28 cents, up from a loss of 8 cents, according to a Bloomberg poll of 15 analysts.
B of A is expected to report that bread-and-butter businesses were hit by offsetting forces. The costs of repurchasing bad mortgages from investors likely fell or remained flat. But originations of new mortgages probably slowed, analysts say.
Things are just as mixed in the industry's few good-news areas, like a modest uptick in demand for auto and business loans. Banks can't add nearly enough of them to offset the construction and business mortgages that keep running off their books, hurting margins.
Even banks like U.S. Bancorp and PNC Financial Services Group Inc. that have been able to steal business customers from other banks said they'd been having problems getting them to actually borrow during the quarter.
William Demchak, vice chairman of PNC, said during a conference in February that utilizations on its commercial credit lines were hovering at 20%, down from 40% to 60% in normal times. The Pittsburgh company added some 1,100 new business customers in 2010.
