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 For the biggest U.S. banks, there were likely other boosts in the
first quarter, including higher bond trading and underwriting
revenue. The big banks start reporting earnings for the quarter next
week, beginning with JPMorgan Chase & Co and Wells Fargo & Co on
Tuesday.
Most are expected to post relatively big profit increases excluding
one-time items, according to average analyst forecasts from Thomson
Reuters I/B/E/S after a year-ago period when results were depressed
by weak mortgage and trading revenues.
Some of the most dramatic shifts for banks may be in mortgages,
analysts said.
"The numbers are very strong. Mortgage banking revenue will probably
be greater than people are expecting," said Paul Miller, an equity
research analyst at FBR Capital Markets.
Falling borrowing costs helped drive the strength. The average
30-year mortgage rate fell as low as 3.63 percent in the first
quarter of 2015, according to Freddie Mac's weekly mortgage market
survey, reaching its lowest level since May 2013. That contrasts
with last year's first quarter, when rates were edging higher,
cutting into volume.
Interest rates fell as slower growth in Asia and Europe spurred
investors to buy U.S. debt and investors pushed further into the
future their expectations for when the Federal Reserve would start
tightening.
With those declines, the Mortgage Bankers Association's index of
applications to refinance mortgage more than doubled from the end of
December through the middle of January. It takes time for those
applications for home loans to close and turn into fees for banks,
but at least some of those loans likely closed during the quarter,
said analyst Chris Mutascio of Keefe, Bruyette & Woods.
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Those that didn't close in time could also help second quarter
results, he said.
Sharp cost cuts, including multiple layoffs, after mortgage volume
fell nearly 40 percent last year, together with the spike in
volumes, could translate into a profit windfall at some banks.
JPMorgan, the second biggest mortgage lender with 7 percent of 2014
loans, according to Inside Mortgage Finance, was among those cutting
back sharply. The bank said in February that it had reduced its
mortgage staffing in 2014 by 12,000 people, or 34 percent. Annual
mortgage business expenses declined by $2.3 billion, or 30 percent.
Wells Fargo, the biggest mortgage lender with 14 percent of 2014
loans, and which has also cut costs, could benefit most from any
rebound in new loans. In last year's first quarter, the company's
mortgage banking revenue fell by nearly half from a year earlier to
$1.5 billion, about seven percent of total revenue.
(Reporting by David Henry and Dan Wilchins in New York; Editing by
Christian Plumb)
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