An Earnings Season Bankers Will Want to Forget

Facing the Doom-and-Gloom Crew

Bank chiefs like JPMorgan Chase's Jamie Dimon, Bank of America's Brian Moynihan and Wells Fargo's John Stumpf had good fourth-quarter stories to tell about growth in consumer loans, checking accountholders, profits and other areas, but they were besieged with questions about their exposure to the energy slump and whether they thought it was a contagion that could spread to other parts of their businesses.

Where'd Our Mojo Go?

Wells Fargo's cross-selling ratio (6.11) hit its lowest point since 2012, raising questions about whether its aggressive sales approach is starting to chase off too many customers. The problem is more than Wells Fargo's, too, since so many banks have sought to imitate its strategy for selling each customer multiple products.

Oil Slump Lights Fire Under Banks

Banks were very reassuring last year about their readiness for problem oil-and-gas loans, but they started to take more drastic steps as the price of a barrel of oil hit its lowest point in more than a decade. For example, JPMorgan Chase increased its reserves for oil by $125 million in the fourth quarter, and CFO Marianne Lake said it would have to add up to $750 million to its reserves if oil prices linger near $30 a barrel "for a long time." Comerica in Dallas charged off $27 million of energy loans in the quarter. And Cullen/Frost Bankers in San Antonio said its fourth-quarter provision for loan losses rose to $34 million from $5.9 million a year earlier because of issues in the energy sector.

Fee-Income Fallout

Bank of America, Regions Financial and some other banks reported strong gains in noninterest income while many others struggled to overcome declines in mortgage-banking fees and volatility in markets-related services. B of A's CFO Paul Donofrio said one of the key takeaways of the quarter was that "revenue growth remains challenging."

More Belt-Tightening Planned

Executives at Regions Financial, U.S. Bancorp and PNC Financial Services Group all said that cost-cutting would be among their top priorities in 2016 at a time when thin margins and, lately, weakening credit quality are weighing on revenue. This time, though, the cuts are aimed less at bolstering short-term returns for shareholders than at funding investments in cutting-edge technologies or new products and services to remain competitive.

Citigroup's Battles at Home and Abroad

Revenues at Citigroup's international consumer banking business fell by 2% compared with the same period a year earlier, and net income fell by 28%. In the firm's North American consumer banking unit, revenues dropped by 6% compared with the same period a year earlier. Net income in the business was down by 13% as Citi tucked aside more money for expected future losses. Citi executives fielded questions from analysts about liquidity, leverage and other hidden threats from global energy- and markets-related tumult, with CEO Michael Corbat assuring investors that "we are unquestionably a safer and stronger company" than before the financial crisis.

Backup Plan

In one of the more interesting diversification efforts noted this earnings season, Dallas-based Comerica said it has shifted more resources to its California markets in a bid to offset weakness in oil-related markets. The company's average loans in California have grown 8% over the past two years, to $16.6 billion.

Struggling to Put It All Together

Loan growth was decent at regional banks such as KeyCorp (4%), Regions (5%) and Huntington Bancshares (6%), but those same banks saw net interest margins fall seven to nine basis points, making it harder to capitalize on the loan growth. It was a familiar problem among banks reporting so far this earnings season though others saw very little loan growth.