Bloomberg reports JPMorgan acknowledged that the situation is becoming difficult as bond markets continue to suffer, and the only way out for JPMorgan is accelerated cost-cutting. JPMorgan’s CFO goes a step further and explains that the bank’s mortgage lending volumes could be cut by 30 – 40%, while the demand for most of the loans in the US is hardly surging.
These macroeconomic conditions combined with more and more stringent capital regulations will lead JPMorgan Chase & Co. (NYSE:JPM) to a tougher second half of the current year.
Better NIM and mortgage banking results
In my opinion, Wells Fargo & Co (NYSE:WFC) posted better-than-expected overall results due to better mortgage banking unit’s results and a relatively stable net interest margin. The bank reported EPS of $0.98, $0.04 per share ahead of the consensus mean estimate, while the revenue for the second quarter came in at $21.38 billion, beating estimates by $170 million.
Mortgage originations surged 3%, while the net interest rate margin plunged only 2 bps over the prior quarter. However, mortgage applications decreased 15% over the same time period, which means the future of mortgage banking at Wells Fargo will be weaker.
In another positive development, Wells Fargo & Co (NYSE:WFC) reported a flat book value compared to the prior quarter. This is in contrast to the highest book value erosion estimated by Credit Suisse and points towards some fixed income portfolio re-balancing and better strategic decision making at the bank.
Competition
I introduce U.S. Bancorp (NYSE:USB) as competition for JPMorgan. That’s because it is the third largest home lender after Wells Fargo & Co (NYSE:WFC) and JPMorgan and has the same diversified business model as the aforementioned banks. According to Yahoo Finance, U.S. Bancorp (NYSE:USB) is expected to report its second quarter results on July 17, 2013.
Credit Suisse expects U.S. Bancorp (NYSE:USB) to report 3% sequential higher revenues, on higher fee-based income as a result of healthy trends in corporate payments and merchant processing. The bank will not experience any significant improvement in its net interest margin, while its credit quality is largely expected to improve. The bank’s mortgage banking results should be better on higher mortgage production. The bank’s management has already acknowledged better mortgage production this quarter, compared to the prior quarter.
Conclusion
While both JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) produced better-than-expected EPS for the second quarter, only JPMorgan Chase disappointed its investors and analysts by reporting lower-than-expected revenue and a poor mortgage banking performance. It is clear that JPMorgan was not able to expand its interest income and utilize higher interest rates, while in contrast to expectations, Wells Fargo & Co (NYSE:WFC)’s fixed income portfolio’s possible re-balancing resulted in a relatively flat book value. So, in my opinion Wells Fargo has a better future.
Adnan Khan has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC).
The article JPMorgan: All That Glitters Is Not Gold originally appeared on Fool.com.
Adnan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
