Chase, Wells Fargo: Loan Growth Eases as ReFi Fever Cools

Chase, Wells Fargo: Loan Growth Eases as ReFi Fever CoolsCost-cutting, less set aside for bad loans and investment banking helped propel JPMorgan Chase and Wells Fargo to record profits in the first quarter, but Wall Street was disappointed primarily by signs of a slowdown in lending and declining mortgage revenue.
A wave of refinancing spurred by low interest rates last year appears to be slowing down, disappointing investors who expected more in light of an improving economy.
Big banks were already looking for bigger revenue streams in the wake of reforms that restrict credit and debit card fees. Meanwhile, scrutiny of risky trading activities has intensified from lawmakers and regulators following JPMorgan Chase’s massive losses in credit derivatives last year.
JPMorgan’s first-quarter profit surged 33 percent year-on-year to $6.5 billion, bolstered by gains in its investment bank. Wells Fargo’s profit was up 22 percent to $5.1 billion, as it focused on cutting costs in light of a declining mortgage business.
JPMorgan Chase CEO Jamie Dimon said: “The exception is that loan growth across the industry has been softer this quarter, although year-on-year growth remained strong. Small businesses remain cautious about the recovery and fiscal uncertainty, and are not investing their capital.”
At JPMorgan Chase, profit from mortgage banking fell 31 percent to $673 million.
Wells Fargo can least afford a decline in the mortgage business, since it accounts for 26 percent of its revenue. The company saw its mortgage-banking income decrease 2.6 percent to $2.79 billion from the year earlier period.
Revenue fell 4 percent at JPMorgan Chase and 1.7 percent at Wells Fargo as both banks dealt with lower profit margins on loans.
Last year, increased refinancing and investor demand for securitized loans generated near-record mortgage profits at the nation’s biggest banks. They benefited from the historically high spread between what homeowners paid in interest rates on their loans and yields commanded by investors that purchased mortgage-backed securities.
Both banks said Friday that they estimate reduced mortgage-related margins for the rest of the year.

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