Defending NIM Beautifully
A look at sequential changes in net interest margin and net interest income underlines Rodis's view that net interest income is holding up nicely for many banks, despite the prolonged hostile rate environment. Wells Fargo ( WFC) reported that its tax-adjusted fourth-quarter net interest margin was 3.56%, narrowing by 10 basis points from the third quarter. Meanwhile, the company's net interest income declined to $10.643 billion in the fourth quarter from $10.662 billion the previous quarter. On a percentage basis Wells Fargo's net interest margin was down by 2.7%, while the company's net interest income was down by just 0.2%. The company said that "the primary driver of the decline, approximately 8 basis points, was strong deposit growth of $30 billion in the quarter," with the incoming money invested in short-term securities, so that the new deposits "were essentially neutral to net interest income." Wells Fargo said that during the fourth quarter, loan-portfolio income "rose slightly from prior quarter, reflecting both organic growth in consumer and commercial loans and the retention of $9.7 billion in high-quality, conforming first real estate mortgages in the fourth quarter." That would indicate that the company didn't sell as much newly originated mortgage product to Fannie Mae ( FNMA) and Freddie Mac ( FMCC) as it could have.
NIM Improves; Net Interest Income Improves More
Fourth-quarter earnings for Bank of America were nearly wiped-out by the company's large mortgage putback settlement with Fannie Mae ( FNMA) and its portion of the $8.5 billion foreclosure settlement between federal regulators and the largest mortgage loan servicers. Looking beyond the legacy mortgage mess, the company's fourth-quarter net interest margin was 2.35%, widening from 2.32% in the third quarter. The company reported fourth-quarter net interest income increased to $10.324 billion from $9.938 billion in the third quarter. That's a 4% increase in just one quarter, when the net interest margin was up only a little over 1%. Delving further, Bank of America's fourth-quarter tax-adjusted net interest income, excluding trading-related net interest income, was $9.543 billion in the fourth quarter, increasing by 2% from $9.320 billion in the third quarter.
Growing Net interest Income Despite Narrowing NIM
JPMorgan Chase ( JPM) had a solid fourth quarter, rounding out the "year of the London Whale," with a profit of $5.7 billion of $5.7 billion, or $1.39 a share.