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Wells Fargo & Co (WFC), JPMorgan Chase & Co. (JPM): Are Investors About to Be Disappointed?

Last year was an excellent one for the U.S. banking industry, as they collectively raked in profits of more than $141 billion, a close second to the pre-crisis total of $145 billion. For some of the biggest banks, such as Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM), mortgage writing had much to do with that increased income.

Wells Fargo & Co (NYSE:WFC)

If investors are looking to see more of the same as banks begin reporting first-quarter earnings later this week, however, some analysts are predicting sober news: The mortgage party might just be over.

Et tu, Wells Fargo?
It’s hard to believe that mortgage maven Wells Fargo could suffer from mortgage-origination malaise, but some experts are warning of a waning in even that mortgage giant’s pipeline. JPMorgan Chase & Co. (NYSE:JPM) analyst Vivek Juneja notes, however, that the slowdown won’t be as damaging to Wells, despite the decline in its home refinancing business.

The reasons? Junega sees Wells Fargo & Co (NYSE:WFC)’ putback expenses diminishing, and mortgage servicing revenues increasing. This puts Wells in a much better position than Bank of America Corp (NYSE:BAC), which has not only fumbled the ball in the mortgage origination game, but has been drastically reducing its stable of mortgage servicing rights.

B of A, Citi seen as works-in-progress
As for Citigroup Inc. (NYSE:C), which also sat out the mortgage mini-boom, the megabank is regarded as still reinventing itself, much the same as Bank of America Corp (NYSE:BAC). Obviously, the mortgage slowdown won’t affect these banks too much, but there’s also not much going on except cost-cutting, so don’t expect a lot of excitement in the first earnings report of the year.

One piece of good news regarding mortgages does affect Bank of America Corp (NYSE:BAC), however. The bank has seen a reduction in its troubled loan servicing workload and has been able to cut staff and shutter offices as the decline continues, helping to pad the bottom line by cutting expenses.

A big deal? Probably not
For Wells Fargo & Co (NYSE:WFC), investors have been forewarned by CFO Tim Sloan that first-quarter revenues from mortgage activity would probably decline. The bank has been aware of the fact that the refinancing boom may be petering out, and it has taken steps to replace lost revenue with portfolio lending — making loans that stay on the bank’s own books.

Concentrating on this type of lending will be aided by the enormous branch network Wells Fargo & Co (NYSE:WFC) acquired with its takeover of Wachovia in 2008, as well as the lack of other, similarly ambitious lenders. This combination has helped the bank dominate the markets of big cities like Manhattan and San Francisco. So, even if the mortgage earnings a little off in the beginning, Wells Fargo & Co (NYSE:WFC) looks poised to more than make up for it as the year progresses — which is good news for investors.

The article Are Bank Investors About to Be Disappointed? originally appeared on and is written by Amanda Alix.

Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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