Here are some quick 2Q 2020 earnings comments on JP Morgan Chase, Wells Fargo, and Citi, who all reported today. Consumer banking revenues down, reserving billions for potential loan losses, and well positioned to maintain collective 13% market share in mortgage.
– Chase, Wells, and Citi reporting 2Q consumer banking revenues down 7%, 26%, and 9%, respectively, is unsurprising given COVID strain.
– Collectively setting aside $28 billion (JPM $10.47b, Wells $9.57b, Citi $7.9b) for loan losses bodes well for these banks weathering protracted unemployment, GDP weakness, and mortgage loss mitigation.
– But it’s still too early to determine whether forbearances progress down a loss mitigation path, especially since we’re only 3 months into 12-month CARES forbearance allowances.
– As for mortgage originations, these three banks collectively had 12.8% market share through Q1 2020 as follows: Wells 7.1%, JPM 4.8%, Citi 0.9% (per Inside Mortgage Finance).
– And we’re headed for $2.65 trillion in originations this year (per MBA), with $1.3 trillion in purchase loans and $1.35 trillion in refis. Next year, we’re projected to do $2.08 trillion, with $1.41 trillion in purchase loans and $679 billion in refis.
– So despite expected strain in other areas of these large diversified banks, as well as potential housing strain, these banks remain well positioned to serve homeowners this year and next.
-Why? Massive loan loss reserves can help if some mortgages go bad. And pricing power can help as we shift from refi to purchase market.