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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
<JPM.N> and Wells Fargo & Co <WFC.N> 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.
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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