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Wells Fargo, other big banks could see lower profits

Gigi Douban Jul 11, 2014
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Wells Fargo, other big banks could see lower profits

Gigi Douban Jul 11, 2014
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Second-quarter bank earnings reports kick off today.  First up is Wells Fargo. Other major banks including JPMorgan, Citigroup, and Bank of America follow next week.  

Wells Fargo has been winning, big. The nation’s top mortgage lender has had 17 straight quarters of earnings growth. But that streak might just come to an end. Earnings aren’t expected to be all that great, as analysts predict small declines in second-quarter earnings.  

Lauren Cohen, who teaches finance at Harvard Business School, says that’s because of slower-than-expected growth in the housing market.

“So it’s not that there weren’t home sales, it’s just that we thought it was going to be a little bit faster,” he says. “So that was baked into expectations about how we thought Wells Fargo was going to do.”

There’s another thing that worries banks: all that money these companies will be paying the government for their part in the recent financial crisis.

“That’s one area that will hurt banks’ bottom lines,” says Michael Imerman, who  teaches finance at Lehigh University. He says over last quarter, several of the big banks have set aside reserves for legal fees and settlements.

“We’re talking billions of dollars, and this seems to be just the beginning,” he says.

On the upside, Cohen says, these are one-off expenses. So banks will bounce back. Eventually.

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