Wells Fargo and JPMorgan report big profits
Wells Fargo reported a $4.2 billion profit this morning.
Jeremy Hobson: Here in this country, two big banks reported earnings this morning. JPMorgan Chase beat expectations with reports of a $5.4 billion profit last quarter, and Wells Fargo made $4.2 billion profit. Both banks said an uptick in mortgage lending helped their bottom lines.
And that's where we'll start with Chris Low, chief economist with FTN Financial, who's with us live as always from New York. Good morning.
Chris Low: Good morning.
Hobson: So Chris, JPMorgan says mortgage loans grew about 33 percent compared with last year, and it was pretty much the same story over at Wells Fargo -- what's going on here?
Low: Well that's right. These are the two big banks that are way out in front of their competitors in terms of cleaning up the mortgage mess that they had on their books from the '08-'09 financial collapse. And now they've moved forward to focus on generating new business. JP Morgan had a loss in mortgages a year ago; this quarter they've got a really nice gain, a lot of it refinancing.
Hobson: All right, well another story that I'm sure will come up here when we talk about the big banks is that they put aside less money for losses -- as they have been doing quarter after quarter -- which is one way that people say banks can beef up the look of their profits. So are we getting the full story from these profits?
Low: I think we are. You know, they're setting aside less for losses because their losses really are smaller. All banks in the U.S. went through some of the biggest earnings hits that they've ever seen -- most of them at the least since the 1930s anyway -- during the financial crisis.
I think what really speaks well for their preparedness is that the Federal Reserve just did a pretty dramatic test -- a stress test -- of their books. What they've determined is that banks are actually, they've set aside enough; they're in better financial shape than they were even during the previous boom. So I'm not worried about that.
Hobson: Chris, quickly, let me just ask you about one other thing -- Google said it's going to split its stock. Can you explain what that means, quickly, and why Google is doing it?
Low: Well, for Google it's a little weird, but bascially what they're doing is the shareholders who currently own the stock at about $630 will get two shares valued at half of that for each one that they own. The reason it's weird is that one of those shares is going to be the existing class; another will be a non-voting class. They're doing two things: one is that they are making the shares cheaper so more people can afford to buy them. The other is that they're maintaining control for founders Larry Page and Sergey Brin, who want to make sure that the company can be nimble and innovative.
Hobson: Chris Low, chief economist with FTN Financial, thanks a lot.
Low: You're very welcome.