National Lenders Remain Squeezed in 2Q
SAN FRANCISCO — Wells Fargo, Capital One and Chase all recently reported mixed second-quarter results, showing that the lenders remain under pressure in a challenging economic environment.
Kicking it off, Wells Fargo Financial, which includes real estate and auto financing, in addition to consumer and private-label credit cards. The business segment recently posted revenue of $1.412 billion, compared with $1.411 billion.
Continuing on, the division increased its provision for credit losses to $771 million from $366 million last year, a change of $111 million.
"Second quarter revenue of $1.4 billion was flat from a year ago," according to officials. "Average loans increased 6 percent from the second quarter of 2007. The provision for credit losses increased $405 million from the second quarter of 2007, and included $265 million of additional provision taken to build reserves. Non-interest expense declined 11 percent from the second quarter of 2007."
Furthermore, the company indicated that net income came in at a $38 million loss, compared with a profit of $156 million in the prior year.
Wells Fargo's average loans reached $68 billion, up 6 percent. Meanwhile, auto finance receivables and operating leases were down 10 percent to $27.5 billion, officials reported.
"In the first half of this year, we continued to tighten underwriting standards in our real estate, auto and credit cards businesses to effectively manage risk in this difficult credit environment," explained Tom Shippee, Wells Fargo Financial's chief executive officer.
Continuing on, he said, "Our auto group is focusing on its core business of non-prime and near-prime lending through both the indirect and direct channels. We're particularly pleased with the growth and performance of our direct auto channel, which we integrated into our consumer store network two years ago and now comprises 30 percent of our new auto originations in the U.S.
"We've decided to stop originating new auto leases effective the end of July," Shippee added. "Second quarter lease volumes were approximately 6 percent of our total auto volume. The prime auto lease business is no longer a strategic fit for us, partly because the returns are not acceptable. However, we will continue to service our existing lease contracts."
Next up was Capital One, and Richard Fairbank, Capital One's chairman and CEO, had some positive things to say about his company.
"Despite cyclical economic headwinds, the company continues to deliver profits and generate excess capital. We remain well-positioned to navigate the near-term economic challenges and to deliver strong shareholder value through the cycle," he reported.
Looking specifically at Capital One Auto Finance, this division reported net income of $33.6 million, compared to a loss of $82.4 million in the prior quarter and a profit of $38 million in the second quarter of last year.
"The auto finance sub-segment's return to profitability this quarter was driven by the seasonal improvement in charge-offs, solid revenue margins and continuing reductions in operating costs," executives explained.
"Beyond this second quarter, the significant cyclical economic challenges facing the auto finance industry continue to be the longer-term driver of performance in the auto finance business," they added.
Total revenues for the division were down $12.4 million, or 3 percent, compared to the first quarter, but were up $7.9 million, or 2 percent, over the same quarter in 2007.
Moreover, non-interest expenses were down 9.7 percent over the prior quarter and 21.7 percent relative to the second quarter of last year.
Net charge-offs of 3.84 percent were down a bit from 3.98 percent in the first quarter, and delinquencies grew 120 basis points from the previous quarter to 7.62 percent.
As for originations, the company said these came in at $1.5 billion, down 38 percent, or $926.5 million, compared to the previous quarter.
Finally, managed loans were $23.4 billion, down 5 percent from the first quarter and down 2.8 percent from the second quarter of 2007.
Meanwhile, over at Chase, the company's chairman and CEO predicted a continued weak economic environment, which may have additional impact on the lender's auto finance division.
"Our expectation is for the economic environment to continue to be weak, and likely to get weaker, and for the capital markets to remain under stress," Jamie Dimon reported. "We remain conscious that since substantial risks still remain on our balance sheet, these factors will likely affect our business for the remainder of the year or longer.
"However, the firm has delivered underlying growth across most of our businesses, and with our substantial capital base, we can continue to invest for the future. In spite of the environment, we are confident that we are building an increasingly strong and profitable company," he continued.
For the auto finance segment, net income came in at $83 million, down $2 million, or 2 percent, from the previous year.
Additionally, net revenue reached $498 million, up $48 million, or 11 percent, which officials said was "driven by higher loan balances and increased automobile operating lease revenue."
The segment's provision for credit losses increased to $117 million, up $25 million, which reflects higher estimated losses.
Officials went on to say that the net charge-off rate was 1.07 percent, compared with 0.61 percent in 2007.
Accounts 30-plus days delinquent inched up 1.57 percent from 1.44 percent in the first quarter.
Non-interest expense of $243 million was up by $24 million, or 11 percent, which executives said was "driven by increased depreciation expense on owned automobiles subject to operating leases."
Overall originations climbed to $5.6 billion, up 6 percent. Meanwhile, average loans came in at $44.7 billion, up 11 percent.