Morning Report: More bank earnings

Vital Statistics:


Last Change
S&P futures 3229 45.1
Oil (WTI) 40.84 0.61
10 year government bond yield 0.65%
30 year fixed rate mortgage 3.02%


Stocks are higher this morning on promising results from a COVID vaccine study. Bonds and MBS are down.


US Industrial Production rose 5.4% in June, while manufacturing production rose 7.2%. Capacity Utilization increased to 68.6%.


Mortgage Applications rose 5.1% last week as purchases decreased 6% and refis rose 12%. “Mortgage rates continued their downward trend, with the 30-year fixed rate falling 7 basis points to 3.19 percent – another record low in MBA’s survey and 63 basis points lower than the recent high in late March,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “The drop in rates led to a jump in refinance activity to the highest level in a month, with refinance loan balances also climbing to a high last seen in March. Despite the decrease in purchase apps, they are still up 15% YOY.


Despite the great performance for the mortgage business in Q2, Chase’s origination volume was down on a sequential basis, from $28.1 billion in the first quarter to $24.2 billion in the second. Given the seasonality of the business this is a surprising result. Originations were more or less flat YOY. The servicing portfolio also fell, from $738 billion to $684 billion. JP Morgan also added another $8.9 billion to loan loss reserves, increasing them to $34.3 billion.


US Bank reported earnings this morning. Earnings were down substantially on increased provisions for credit losses. The residential loan portfolio remains high quality with an average FICO of 768 and LTV of 68%. 90 day DQs were at .17% of the portfolio, which was a slight increase. Mortgage banking revenue increased 64% QOQ to $648 million due to higher volume and gain on sale revenues, which were offset by a falling servicing values.


Citi reported a 5% increase in revenues, but a 74% decrease in EPS due to increased provisions for credit losses. Mortgage origination increased 64% YOY to $6.4 billion. The servicing portfolio declined about 2%.


The rebound in housing caused Fannie Mae economists to revise upward their 2020 GDP estimate from down 5.4% to down 4.2%.


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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