JPMorgan Chase & Co. (JPM), Wells Fargo & Co (WFC): Earnings, An Early Look

But one big challenge that Wells Fargo will start to face this quarter is in mortgage lending. Although the fact that housing prices have apparently hit bottom is an encouraging sign, slight rises in interest rates could put a halt to refinancing activity. That in turn will force banks to seek more of the transaction-based revenue that has helped them recover so strongly, and they’ll need to get it from new homebuyers rather than existing homeowners seeking lower mortgage rates from new loans. Although JPMorgan Chase & Co. (NYSE:JPM) has also been a big player in the mortgage market, Wells outpaced JPMorgan’s home-loan volume by nearly 150% in the fourth quarter of 2012, showing the extent of Wells Fargo’s reliance on the segment for its overall profits.

Another concern is the return of subprime lending, this time in the auto-loan market. Both Wells Fargo & Co (NYSE:WFC) and Bank of America Corp (NYSE:BAC) have made it easier for customers to get auto loans, although they’ve largely stayed in the prime market. But by helping to back subprime lender Exeter Finance, Wells Fargo has at least some risk from the lower end of the credit tier.

In its quarterly report, Wells Fargo will likely move forward with its decision on its dividend, and should provide more color on how it plans to handle a less generous interest rate environment going forward. With solid management on board, Wells Fargo & Co (NYSE:WFC) should be able to chart a course forward that will preserve its profitability and battle-tested financial strength.

The article Wells Fargo Earnings: An Early Look originally appeared on Fool.com.

Fool contributor Dan Caplinger owns warrants on Wells Fargo, JPMorgan Chase, and Bank of America. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America, JPMorgan Chase, and Wells Fargo.

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