After a stellar 2012, in which U.S. banks produced income levels to rival pre-crisis highs and some pretty decent first-quarter reports from the likes of Wells Fargo (WFC 1.24%) and JPMorgan Chase (JPM 1.94%), big banking seems poised for a slowdown. The primary culprit will be the mortgage industry, which the Mortgage Bankers Association notes will decrease home lending over the rest of this year, compared to last, by 16%.
While some banks, notably Wells Fargo and Bank of America (BAC 2.06%), are fighting back against this trend, JPMorgan appears to have made peace with the idea of lower profits for the remainder of 2013. The big bank seems to be exhibiting some malaise in areas other than mortgage banking as well. Here are three reasons I think JPMorgan is in a funk.
1. Huge staff cuts
Although many megabanks are promising to slash employee numbers this year, JPMorgan has the largest number of pink slips at the ready -- 17,000, to be exact, constituting nearly 81% of the combined 21,000 that the six biggest banks plan to trim before the end of next year.
Layoffs are to be expected as troubled loan portfolios become more manageable, but these cuts are huge and approximately 14,000 of those layoffs are said to come out of the bank's mortgage unit. At the same time, Wells and B of A are both adding to their mortgage departments. Perhaps JPMorgan is responding to first-quarter numbers that showed an increase in year-over-year mortgage originations of 37%, while delivering a 31% dip in net income due to narrower margins.
2. The bank has dropped out of the Euromoney FX poll
After falling a few notches in the Euromoney foreign exchange listing last year, JPMorgan has decided to no longer participate in the survey, in which investment banks ask for customers' support in an effort to climb higher in the rankings.
Does this matter? It might, as this yearly ritual apparently has some effect on rankings. Though observers note that Goldman Sachs (GS 3.30%) also stopped canvassing for votes several years ago, it was also noted that JPMorgan could drop another tier in the rankings because of this decision.
3. JPMorgan considers many investment banks a lousy investment
Yes, that's right. Even though JPMorgan ranks first in investment banking fees, it recently released a paper saying that top-tier investment banks are "uninvestable," suggesting that perhaps entities like Bank of America and Citigroup would be a better bet for investors.
Why does JPMorgan say that a group of which it is a member is no longer a good deal? The bank's analysts note that rivals like Goldman and Deutsche Bank face a slew of new regulations that may affect earnings, as well as concerns with future capital restrictions. JPMorgan didn't mention itself in this report, but The New York Times predicts some "uneasy reading" for JPMorgan executives.
Has JPMorgan lost its groove? These three recent signals are worrying, but 2013 is still young. Perhaps the bank will clear the clouds off its horizon and get back its mojo or, just possibly, it has a plan for success that isn't apparent to the investment community. Time will tell, but JPMorgan may be signaling the advent of tough banking times, and very soon.
