Earnings Put Consumer Banking in the Shadow

NEW YORK (TheStreet) -- Consumer banking -- once reliable contributor to big-bank earnings -- is moving from a low margin to a no-margin business that is forcing executives to place their growth bets on other business lines.

If the most recent earnings season proves anything, it's that banks will not rely on consumer banking for growth in the near future.

The biggest news out of big banks' quarterly reports this month was Bank of America's (BAC) discomfiting losses and the lack of certainty about when, exactly, its gaping mortgage wounds will heal.

The company reported a $1.2 billion loss, reflecting $4.1 billion worth of mortgage repurchases and $1.5 billion worth of litigation expenses. Bank of America estimates that it has another $7 billion to $10 billion in buyback exposure - a number that's questionable, considering management deemed the exposure unquantifiable just a few months earlier.

On the flip side, there was the biggest pure-play U.S. consumer bank, Wells Fargo (WFC). The company's $3.4 billion of fourth-quarter profit was in line with expectations and attributable to gradual credit improvements, modest loan growth and cost cutting.

Ho-hum.

"They're right in the heart of plain-vanilla U.S. banking," says Mac Plumart, principal of Marietta, Ga.-based investment advisory firm Narwhal Capital Management, which manages about $400 million in assets.

Those who were seeking something sexier in consumer banking were probably disappointed with JPMorgan Chase's (JPM) stunning quarterly beat. The firm reported a 47% jump in fourth-quarter profits, but its retail business was far from the belle of the ball; rather, its investment bank's deft navigation of volatile credit conditions last quarter was what impressed Wall Street.

On a conference call, analysts ignored the $750 million in retail banking profits and $1.3 billion in credit card earnings. Instead, they hammered away with questions about the JPMorgan's exposure to mortgage litigation and buyback related expenses.

"We'll be talking about this every quarter for the next three years," said an exasperated Jamie Dimon, after the CEO fielded the same question asked multiple ways.

Of course, there was nothing bad about the consumer banking results at Wells Fargo or JPMorgan Chase, but nothing exhilarating either. Their businesses are doing well, spending less on bad loans, investing in areas where it makes sense and squeezing efficiencies out of every possible corner.