Investments

JPMorgan Chase & Co misses expectations on 3Q revenue, income

Mortgage banking income rose 29%

JPMorgan

JPMorgan Chase & Co. (JPM) missed analyst expectations, posting revenue of $23.54 billion in the third quarter, down 6.4% from third quarter 2014, with earnings per share of $1.32, which was $0.05 below what analysts forecast.

Net income was $6.8 billion, an increase of 22%.

Net revenue was $23.5 billion, down 6.4%, driven by lower CIB markets revenue including business simplification and lower mortgage banking revenue.

Net interest income was $11.2 billion, down 1% compared to the prior year, as lower investment securities balances and lower trading net interest income were predominantly offset by loan growth. Net interest income was up 2% quarter-over-quarter, driven by higher loan yields and balances.

"We had decent results this quarter. We saw the impact of a challenging global environment and continued low rates reflected in the wholesale businesses’ results, while the consumer businesses benefited from favorable trends and credit quality,” said Jamie Dimon, Chairman and CEO. “Overall, our risk management discipline and diversified platforms across the businesses are serving us well.”

Noninterest expense was $15.4 billion, down 3%, driven by lower CIB expense related to compensation and business simplification, partially offset by higher legal expense.

The provision for credit losses was $682 million, down 10%, due to lower net charge-offs, largely offset by lower reserve releases. In the current quarter, consumer reserve releases of $591 million, reflecting continued improvement in home prices and delinquencies, were largely offset by an increase in reserves across the wholesale businesses of $310 million driven by select downgrades, including Oil & Gas.

Mortgage banking net income was $602 million, an increase of 29%.

Net revenue in commercial banking was $1.6 billion, a decrease of 23%, driven by lower net servicing revenue and the absence of a non-recurring gain reported in the prior year.

“We continue to focus on our commitments, optimize our balance sheet and manage our expenses. We are also building the businesses for the future, dedicating resources to controls, cybersecurity and technology,” Dimon said.

Noninterest expense was $1.1 billion, a decrease of 13%, reflecting continuing mortgage efficiencies.

The provision for credit losses was a benefit of $534 million, compared with a benefit of $19 million in the prior year, driven by a larger reduction in the allowance for loan losses reflecting continued improvement in home prices and delinquencies. The current quarter provision reflected an allowance reduction of $575 million, of which $375 million was related to the purchased credit-impaired portfolio and $200 million was related to the non credit-impaired portfolio.

JPMorgan is attempting to grow its mortgage market share to offset recent revenue declines in its mortgage business as fewer Americans refinance, an article in Reuters said. The plan? Buy more mortgages.

In the first half of 2015, the bank bought 62% of the $58 billion in home loans it added to its books, compared with 56% in 2014 and 37 percent in 2011.

While other big banks buy mortgages from other lenders, known as correspondents, JPMorgan has racked up the biggest increase among its peers in the proportion of loans it buys from others, according to data from trade publication Inside Mortgage Finance. JPMorgan is fighting for business in what has been a shrinking market.

This move from JPMorgan comes during a time that a lot of the big banks are more hesitant to lend.

National Mortgage Settlement Monitor Joseph Smith recently credited Chase with $3,555,280,673 in consumer relief to 158,107 borrowers through March 31, 2015.

This is Smith’s sixth report on JPMorgan’s progress on its settlement with the federal government and five states concerning claims that Chase, Bear Stearns and Washington Mutual packaged and sold bad residential mortgage-backed securities to investors before the financial crisis.

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