Major US banks post strong 2016 earnings

New York: Wells Fargo reported lower fourth-quarter earnings Friday, underperforming two large rivals, following its bogus accounts scandal, but the firms were upbeat about the outlook.

The banks said they were hopeful higher interest rates and a potentially more favorable regulatory climate under President-elect Donald Trump could boost the industry.

Wells Fargo, which has been under pressure following revelations last fall that it opened some two million accounts without their customers’ knowledge, said it refunded $3.2 million to in fees resulting from the fake accounts, up from the prior $2.6 million.

Research also showed more than 175,000 customers who had unauthorized credit cards opened received a lower credit rating from a credit bureau, the bank said.

However, some of the data released by the bank suggested clients are beginning to move past the debacle. Total branch interactions in December rose 11 percent from November, although they were still down six percent from the year-ago period.

Wells chief executive Tim Sloan said on an analyst conference call the bank welcomed signs of a possible “inflection point,” although it was too soon to know.

Net profit fell 4.2 percent to $21.94 billion last year, including a drop of 5.4 percent in the fourth quarter alone due to a series of costly measures the bank implemented to regain consumer confidence.

Despite the woes over Well Fargo accounts, the banking sector is viewed as having strong prospects, boosted by the recovering economy and booming financial market that followed the Trump’s election.

And with expected economic stimulus and tax cuts likely to bring interest rate increases from the Federal Reserve, banks are likely to see continued profitability this year. The Dow Jones US Banks Index has risen about 25 percent since November 8.

Investors cheered the earnings reports, lifting shares of Wells Fargo 2.4 percent to $55.80, Bank of America 1.0 percent to $23.17 and JPMorgan Chase 1.2 percent to $87.28 in midday trading.

 – Dimon hopeful on Trump –

JPMorgan Chase, the biggest US bank by assets, announced record profits for 2016, boosted by a “dynamic” US economy and a surge in brokerage activities. Annual net profit rose 1.2 percent to $27.7 billion, including $6.73 billion in the fourth quarter alone.

Executives with JPMorgan described US consumer activity as resilient and the US economy as generally solid. Total loans were $894.8 billion, up seven percent from the year-ago period.

Chief executive Jamie Dimon said he was encouraged by Trump’s selection of Rex Tillerson as secretary of state and Steven Mnuchin as secretary of treasury.

He also said he was hopeful the president-elect’s broadsides against free trade were political rhetoric and would be followed up with more reasonable policies.

“I have some confidence he’ll do the right thing for America,” Dimon said on a conference call with reporters. “Give him some time.”

Bank of America said higher interest rates and an increase in consumer loans boosted earnings, but its business grew less than expected.

Net profit in 2016 jumped 13 percent year-on-year to $16.2 billion, marked by a 46.8 jump in the fourth quarter. This resulted in adjusted earnings per share of $1.50 for the year.

While revenues from consumer loans increased as expected following the Federal Reserve interest rate hike in December, revenues from market activities were not as strong as hoped.

“If the recent rate hike occurred too late to boost fourth quarter results, we anticipate a higher profit growth in the first quarter of 2017,” chief financial officer Paul Donofrio said in a press release.

The Fed has suggested it could raise rates three times this year, given the Trump administration promises of massive tax cuts and large investments in infrastructure, which could fuel inflation.