Courtesy of Mish.
Stocks have been soaring mostly on investor sentiment. That sentiment was partially based on the belief earnings would continue to rise quarter after quarter, year after year. Investors also believe the Fed has their back. But what if the earnings thesis is not true?
The New York Times reports JPMorgan Earnings Fall 18.5% on Slowdown in Trading and Mortgage Lending
JPMorgan Chase reported an 18.5 percent slump in first-quarter earnings on Friday, as the nation’s largest bank grappled with dual challenges: sluggish revenue from trading and lackluster mortgage lending.
The bank’s stock dropped when the market opened on Friday morning, falling more than 4 percent.
Part of the slowdown came from a slowdown in revenue from fixed-income trading, which fell roughly 26 percent to $3.76 billion from $4.75 billion a year earlier.
JPMorgan’s earnings also contained a number of bright spots, including an increase in average loan balances within the commercial banking business, along with an uptick in auto loans. Auto loans grew by 3 percent, to $6.7 billion from $6.5 billion a year earlier. Private banking was another rosy area for the bank, with revenue rising to $1.5 billion, up 4 percent from the same period last year. Credit card sales volume also grew, up 10 percent to $104.5 billion from the same period last year.
Still, the strength of those businesses could not completely offset the continued decline in trading revenue and mortgage refinancing, which had once been a particularly robust source of profit for JPMorgan and its rivals.
Now, the heady days of refinancing seem distant. Rising interest rates, coupled with an increase in housing prices, have damped homeowners’ appetite to refinance. Mortgage loan originations also dropped to $17 billion, down 68 percent from a year earlier, and 27 percent from the previous quarter. That helped push net income down by $559 million to $114 million for the first quarter.
Asked whether the fall in mortgage loan originations might prompt the bank to broaden its lending to a wider swath of people — even those with tarnished credit scores — Mr. Dimon said on Friday that “our credit standards are pretty consistent.” He added, “We feel pretty good about the risk that we are taking.”
The comment reflects a deep timidity among the banks, which have focused their lending almost exclusively on borrowers with good credit. In part, the banks are reluctant to take on risk and are skittish about exposing themselves to litigation related to any questionable mortgages.
The Financial Times reports JPMorgan Misses Targets as Fixed Income Hit
JPMorgan Chase had its worst start to the year in fixed income trading since the depths of the financial crisis, causing the largest US bank to report a sharp decline in profits.
Revenues from trading bonds, currencies and commodities fell 21 per cent in the first quarter to $3.8bn, compared with the same period in 2013.
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