In October of 2013 I went out on a limb by calling for a housing market top. You can see it here I Am Calling For A Real Estate Top Here. At that time I suggested that while it might be incredibly difficult to see the actual real estate market top (because most real estate markets are local and they will roll over on their own accord), by the time October of 2014 rolls around, we will see clear negative numbers on Year-Over-Year basis. Confirming that the Fall of 2013 was indeed the top.
As JP Morgan Chase reported their quarterly results this morning, we continue to gather evidence that the call above was dead on the money. Not only did JP Morgan missed, it missed by a mile. Revenue $23.9 Billion Vs $24.5 Billion expected, earnings $1.28 Vs. $1.38 consensus. Most importantly, JPM suffered a 42% drop in mortgage revenue and a 21% slide in fixed income trading. Further, it set the precedent to expect the same results from other banks and financials. I wonder how long before the weather is blamed for such fundamental misfortune.
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Bloomberg Writes: JPMorgan Profit Falls 19% on Trading, Mortgage Declines
JPMorgan Chase & Co. (JPM), the biggest U.S. bank, said first-quarter profit fell 19 percent on lower revenue from fixed-income trading and mortgages, themes that may be repeated across Wall Street next week. The shares declined 2.9 percent.
Net income dropped to $5.27 billion, or $1.28 a share, from $6.53 billion, or $1.59, a year earlier, according to a statement today from New York-based JPMorgan. Ten analysts surveyed by Bloomberg estimated $1.46 a share on average.
JPMorgan, the first of the top U.S. banks to post results for the period, said profit fell in every major division, amid a 42 percent drop in mortgage revenue and a 21 percent slide in fixed-income trading. Chief Executive Officer Jamie Dimon, 58, warned investors in February that trading had fallen 15 percent for the first two months of 2014, a decline analysts including David Konrad of Macquarie Group Ltd. blamed on a reduction in the Federal Reserve’s bond purchases.
“It’s been a tough quarter for the industry,” said Pri de Silva, senior banking analyst at CreditSights Inc. in New York. “I’m not overly worried about JPMorgan unless I see something else going on apart from what we already know is lower fixed-income trading and mortgage results.”
JPMorgan, the first of the top U.S. banks to post results for the period, told… Read More
JPMorgan fell to $55.75 in New York trading at 7:41 a.m. from $57.40 yesterday.
Konrad said in an April 4 research note that banks will have a “challenging quarter” as higher interest rates reduce loan refinancings.
Revenue, Expenses
Total revenue dropped 7.7 percent to $23.9 billion, as noninterest expenses declined 5.1 percent to $14.6 billion.
JPMorgan’s investment-banking head, Daniel Pinto, said this week he was overhauling the division’s reporting lines after his former co-head, Mike Cavanagh, left to join Carlyle Group LP. Pinto named Carlos Hernandez co-head of global banking with Jeff Urwin, John Horner head of investor services and Joyce Chang global head of research.
Earnings at Pinto’s corporate and investment bank dropped 24 percent to $1.98 billion, as revenue declined 15 percent from a year earlier to $8.61 billion. Fixed-income trading revenue fell to $3.8 billion on “weaker performance across most products and lower levels of client activity,” the bank said.
The 21 percent drop in fixed-income trading revenue surpassed estimates of a 15 percent decline from Moshe Orenbuch, an analyst at Credit Suisse Group AG, and 17 percent from Wells Fargo & Co.’s Matt Burnell.
People stand inside the JPMorgan Chase & Co. headquarters building in New York.
Consumer Bank
Net income from consumer and community banking, run by Gordon Smith, fell 25 percent to $1.94 billion as provisions for credit losses surged 49 percent to $816 million. Revenue was $10.5 billion, down 10 percent from a year earlier.
Mortgage revenue dropped to $1.57 billion in the quarter, from $2.72 billion a year earlier. Home-loan originations were $17 billion, down 68 percent from the prior year as higher interest rates curtailed refinancings.
JPMorgan said profit in asset management, run by Mary Erdoes, declined 9 percent to $441 million, as costs rose 11 percent to $2.1 billion on “headcount-related expenses.” Assets under management climbed 11 percent to $1.6 trillion amid greater inflows and rising equity markets. Commercial banking, a division run by Doug Petno, posted a 3 percent profit decline to $578 million.
Blythe Masters
Another top executive, Blythe Masters, plans to depart. Masters, 45, will resign after she helps the bank complete the $3.5 billion sale of a commodities unit to Mercuria Energy Group Ltd., the company said last week. Over 27 years she rose from being a JPMorgan intern to running several credit desks and finally heading the commodities business.
The departures followed a trying year for Dimon, who agreed to more than $20 billion in legal settlements tied to lapses including mortgage-bond sales and trading losses in 2013. Resolving the disputes was the “most painful, difficult and nerve-racking experience that I have ever dealt with professionally,” Dimon said this week in his annual letter to investors.
JPMorgan could eventually earn $27 billion a year, or about $6.8 billion a quarter, as legal costs subside and higher interest rates boost margins, the bank said during its Feb. 25 investor meeting. The company said the quarterly dividend will rise to 40 cents a share from 38 cents, and it authorized a $6.5 billion stock buyback after the Fed approved the lender’s capital plan.
Citigroup Inc. reports earnings on Monday, followed by Bank of America Corp. April 16. Goldman Sachs Group Inc. and Morgan Stanley announce results on April 17.