Money talks
JP Morgan Chase saw earnings increase from $4.9 billion in the second quarter of 2012 to $6.5 billion in the second quarter of 2013. Wells Fargo & Co (NYSE:WFC) was not too far behind with an earnings boost from $4.6 billion the second quarter of 2012 to $5.5 billion in the second quarter of 2013.
JPMorgan Chase & Co. (NYSE:JPM)’s recent earnings illustrate the “London Whale” scandal has not hurt business — trading revenue is at $5.4 billion, up 18%. The bank has even declared a preferred stock dividend on outstanding shares. All is not rosy, and with several cases against them – energy market manipulation charges, Washington foreclosure trial and new capital rules – JPMorgan Chase & Co. (NYSE:JPM) must continue to keep its “financial” nose clean.
Wells Fargo & Co (NYSE:WFC) has a strong balance sheet. Strong overall performance and a recent $8 billion acquisition of Commerzbank’s Hypothekenbank Frankfurt is just another sign of Wells Fargo’s savvy sector performance. The stock has a highly attractive dividend yield of 2.8%. All is not perfect. Wells Fargo & Co (NYSE:WFC) is laying off 350 national mortgage business employees as demand for refinancing has slowed. These layoffs are about workload, not the overall business climate, so investors should not be alarmed. Well Fargo has been aggressive by getting into overseas commercial property loans while growing retail banking branches. Well Fargo clearly wants to grow its credit card business and catch up with Bank of America, Chase, and Citi.
Straight cash, homey
Banks are increasingly boosted by rich individuals and foreign buyers who are paying cash. Investors, not just institutional investors, have been buying up American foreclosures and distressed properties at a torrid pace — often pushing out traditional buyers. Cash is king, and those who can’t pay a 20% down payment are simply priced out of the current housing market. For banks, this new trend is fueling a good portion of these banking bellwether and home-building gains. In hot areas, such as San Francisco, many Chinese buyers are snapping up property. Randy Moss was right, when you’re rich, you don’t write checks — you pay cash.
If you build it
A recent National Association of Home Builders/Wells Fargo & Co (NYSE:WFC) index of builder sentiment shows that American home-building is climbing. The index of builder sentiment rose to 57 in July, a 6-point increase since June. The recent increase in mortgage rates has not stopped the significant rise in demand for new homes. Many builders can’t keep up with the growing demand. Lennar Corporation (NYSE:LEN) provides a rich buying experience by providing great customer care via its Total Lennar Care (TLC) initiative. Educating customers at its Lennar Corporation (NYSE:LEN) Welcome Home Centers is another example of how this firm aims to provide not just a quality home, but a quality home-buying experience. Lennar Corporation (NYSE:LEN) is also operating at industry-high margins — operating margins slightly above 13% make this firm the home builder to watch.
We got next
It’s not just the big banks profiting from this home-building boom, some regional firms are capitalizing. Be on the lookout for Stonegate Mortgage — the regional lender is set to go public soon. Stonegate Mortgage has filed with regulators for an initial public offering. This firm is growing at a rapid rate — the Indianapolis firm already does business in more than 30 states. Stonegate raised $115 million in a private offering in May of 2013. These funds will be used to fuel profitable non-government backed jumbo loans and to build more servicing contracts. Over half (65%) of Stonegate’s business is acquiring loans from banks, brokers, other mortgage companies, and financial institutions. Keep Stonegate Mortgage on your radar — Stonegate’s revenue grew from $15 million in 2010 to $95 million in 2012.
Trading places
As American home buyers ramp up to upgrade or invest, the home-building sector is hot. Look for home-building firms to grow — we may start see some M&A activity in this sector. Banks will see profits and continue to run with the bull market. With no Billy Ray Valentine or Louis Winthorpe III to foil them, American financials are ballin’ big-time — and investors are rewarding banks. But home builders and smaller regional banks and mortgage firms may be the real winners in this second housing boom. It seems 2008 is a distant memory to investors, the banking industry, home builders, and home buyers. You can almost hear banking bellwethers unthrifty whisper to Wall Street, “Mortimer, we’re back in business!” Who needs orange futures when you have net charge-offs and pre-tax pre-provision profits? Back in business, indeed.
The article Mortgages and Housing: We’re Back in Business! originally appeared on Fool.com and is written by John Moore.
John Moore has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of JPMorgan Chase & Co (NYSE:JPM). and Wells Fargo. John is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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