Two of the nation's largest banks on Friday reported slower volumes on home and auto loans in the second quarter as mortgage refinances continue to taper off and car lending standards tighten.
Wells Fargo and JPMorgan Chase reported healthy profit gains, but their stocks suffered in early trading as some investors were disappointed by the results.
The banks are among the nation's largest mortgage and auto lenders, competing with credit unions in nearly every market. The reports provide an early glimpse at lending conditions for the three months ending June 30 – data that won't arrive from credit union groups until mid- to late August.
Despite strong profits and record net interest income revenue, Wells Fargo CEO Tim Sloan said the San Francisco bank will continue efforts to reduce costs by $2 billion in 2018 and $2 billion in 2019. As part of that effort, it will close 200 branches this year and another 250 next year. The San Francisco bank had 5,977 retail bank branches on June 30, reflecting 93 branches that were closed so far this year.
The bank's costs stem in part from a scandal stemming from aggressive sales incentives that contributed to employees fraudulently opening more than 2 million accounts. Regulators fined Wells Fargo $185 million in September, and CEO John Stumpf later resigned. On Saturday, the bank received preliminary approval to pay out $142 million to affected customers.
Fed Chair Janet Yellen told Congress this week that the Fed needs to investigate the causes of Wells Fargo's problems and take steps to prevent them from recurring.
Meanwhile, the Los Angeles Times reported Friday that a former Wells Fargo mortgage banker in Beverly Hills has filed a suit alleging the bank falsified records so it could blame holdups on borrowers and rack up fees. The plaintiff says he was fired for trying to report the practice.
Friday's earnings reports showed strong profit gains at both banks in the second quarter, but weaker conditions in two key markets where they compete with credit unions: housing and cars.
Second-quarter profits rose 5% to $5.8 billion from a year earlier at Wells Fargo, and 13% to $7 billion at JPMorgan Chase.
Income remained strong for credit cards, but it weakened for mortgages and cars loans.
Wells Fargo's first-mortgage originations fell 11% to $56 billion in the second quarter, compared with a year earlier. They were also down from $44 billion in the first quarter. Refinances were 25% of originations in the second quarter, down from 40% a year ago, 39% in the first quarter and a high of 50% in the fourth quarter.
JPMorgan Chase's mortgage revenue fell 26% to $1.4 billion as originations fell 4% to $23.9 billion. Its balance for mortgages was rose only slightly as the residential mortgage balance grew 6% to $189.7 billion, home equity lines fell 15% to $46.3 billion.
Concern about delinquencies in subprime car loans led Wells Fargo to announce earlier this year it was tightening standards. As a result, Wells Fargo consumer auto originations were $4.5 billion in the second quarter, down 17% from the first quarter and 45% from a year earlier.
The tighter standards also raised the average FICO score of borrowers from 696 a year ago to 719 in the second quarter.
JPMorgan Chase's vehicle loan and lease originations fell 2% to $8.3 billion. Despite the drop in originations, the balance of auto loans rose 2% to $65.6 billion.
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