Wells Fargo and JPMorgan Chase both released their earnings summaries for the third quarter on Friday, the first of the big banks to do so. The two reports paint a very mixed picture. Wells Fargo raked in record profits, while JPMorgan Chase reported its first-ever loss under CEOJamie Dimon’s watch.
For the 10th straight quarter, Wells Fargo reported a new record for net income, posting a profit of $5.6 billion, a 13 percent increase over the same period last year. For the first nine months of the year, the bank—the nation’s biggest name in home lending—pulled in $16.3 billion compared to $13.8 billion last year.
Wells Fargo chairman and CEO John Stumpf cited the improving housing market as one of the biggest factors in the bank’s rising profits, though mortgage business was down. Third-quarter originations totaled $80 billion, down from $112 billion in Q2 2013, while net mortgage servicing rights results were $26 million compared with $68 million the prior quarter.
The company benefited from a decline in the amount set aside for repurchase losses—$28 million compared to $65 million in Q2. Wells Fargo reached an $869 million agreement with Freddie Mac in late September to settle repurchase claims on loans sold before and at the start of the housing crash; those funds were already covered by the bank’s accrued repurchase reserves and did not affect third-quarter profits.
Wells Fargo CFO Tim Sloan described the company’s third-quarter results as “solid.”
“As expected, mortgage banking revenue was lower in the quarter as the recent increases in interest rates reduced refinance volume, but this impact was partially offset by improved credit and lower expenses,” Sloan said.
JPMorgan’s earnings, on the other hand, sank under the weight of a $9.2 billion (pretax) legal expense, which included reserves for litigation and regulatory proceedings.
For the quarter, the bank reported a net loss of $380 million. A year ago, Q3 profits totaled $5.7 billion.
Taking one-time costs out, JPMorgan says third-quarter net income would have been $5.8 billion.
“While we had strong underlying performance across the businesses, unfortunately, the quarter was marred by large legal expense,” said chairman and CEO Jamie Dimon. “While we expect our litigation costs should abate and normalize over time, they may continue to be volatile over the next several quarters.”
Dimon added that JPMorgan’s board “continues to seek a fair and reasonable settlement with the government on mortgage-related issues—and one that recognizes the extraordinary circumstances of the Bear Stearns and Washington Mutual transactions,” which he stressed were undertaken at the government’s urging.
Mortgage banking net income was $705 million—an increase of 13 percent over the previous year—reflecting a lower provision for credit losses offset by lower net revenue. Originations totaled $40.5 billion, a drop of 14 percent year-over-year and 17 percent quarter-over-quarter. Application volumes were $40.4 billion, down 45 percent from the prior year and 38 percent from the prior quarter.