I wrote yesterday I'd be reporting on more key findings from the JPMorgan Chase (NYSE:JPM) investor day, held Tuesday, and I doubt there will be a more key finding than this: The superbank will be cutting 17,000 jobs over the next two years.
The fewer defaults, the fewer the processors
CEO Jamie Dimon himself made the announcement. Most of the cuts will come from the consumer and mortgage sides of the bank, but the mortgage business will be taking the brunt of the damage by far, with expected layoffs between 13,000 and 15,000.
Dimon attributed the layoffs to (1) a better housing market, which means fewer people handling the defaults, and (2) improvements in automation, which means fewer people needed to do, well, everything. (I have my own thoughts on that second point.)
A sad but sound move
According to Financial Times, Bank of America (NYSE:BAC) has the "largest default servicing business," and is also expecting to cut staff in its mortgage business as the housing market improves.
I hate hearing about job cuts. I've been through plenty myself, and as a child watched my dad go through too many. So as cliche as it sounds, I feel the pain of these people about to be let go, made worse by the fact we still have so many people unemployed in this country.
But the flip side is, an improving housing market correlates with an improving economy. According to the National Association of Homebuilders, housing and related services can contribute up to 18% to GDP. So a better housing market should mean a better economy, which should mean more jobs for everyone.
And facts are facts: If mortgage defaults are coming down, and it looks like the trend will continue, then what choice does a business have except to let the people go who do that work? It wasn't that long ago it seemed like the housing market would never come around. Likewise, it probably seemed mortgage-default servicers would be needed into perpetuity.
And if JPMorgan and B of A expect to cut from the mortgage side, expect to see Citigroup (NYSE:C) and probably even Wells Fargo (NYSE:WFC) do it, too. Tally this up as a sound, if disturbing, move on the part of JPMorgan.