A sharp drop in mortgage activity and JPMorgan’s legal expenses caused bank earnings to fall year-over-year for the first time since 2009.
A sharp drop in mortgage activity and JPMorgan’s Brobdingnagian legal expenses caused bank earnings to fall year-over-year for the first time since 2009, according to the FDIC.
The agency reported Tuesday that banks and savings institutions reported aggregate net income of $36bn in the third quarter – a 3.9% decline from Q3 2012’s profits of $37.5bn. “The earnings decline was mainly attributable to a $4 billion increase in litigation expenses at one institution,” the FDIC reported.
Although the institution wasn’t named in the report, a source told Reuters that the bank in question was JPMorgan. The nation’s largest lender has been hit by numerous costly lawsuits in the last year, and recently settled government claims against its sales of mortgage-backed securities for a record $13bn.
A plummeting demand for mortgage loans also fueled the earnings drop. Banks reported that originations of one- to four-family residential loans were $136.8bn lower than in the second quarter, and spiking interest rates scuttled the demand for refinancings. Noninterest income from the selling, servicing and securitization of mortgages dropped 45.2% from Q3 of 2012, according to the report.
It wasn’t all bad news, however. The percentage of banks that were unprofitable fell to 8.6% from 10.7% in 2012, and the number of banks that failed was less than half what it was over the same period last year.
“Most of the positive trends we have been seeing in industry performance continued in the third quarter,” said FDIC Chairman Martin J. Gruenberg. “Fewer institutions reported quarterly losses, lending grew at a modest pace, credit quality continued to improve, more banks came off the ‘Problem List,’ and fewer banks failed.”
The agency reported Tuesday that banks and savings institutions reported aggregate net income of $36bn in the third quarter – a 3.9% decline from Q3 2012’s profits of $37.5bn. “The earnings decline was mainly attributable to a $4 billion increase in litigation expenses at one institution,” the FDIC reported.
Although the institution wasn’t named in the report, a source told Reuters that the bank in question was JPMorgan. The nation’s largest lender has been hit by numerous costly lawsuits in the last year, and recently settled government claims against its sales of mortgage-backed securities for a record $13bn.
A plummeting demand for mortgage loans also fueled the earnings drop. Banks reported that originations of one- to four-family residential loans were $136.8bn lower than in the second quarter, and spiking interest rates scuttled the demand for refinancings. Noninterest income from the selling, servicing and securitization of mortgages dropped 45.2% from Q3 of 2012, according to the report.
It wasn’t all bad news, however. The percentage of banks that were unprofitable fell to 8.6% from 10.7% in 2012, and the number of banks that failed was less than half what it was over the same period last year.
“Most of the positive trends we have been seeing in industry performance continued in the third quarter,” said FDIC Chairman Martin J. Gruenberg. “Fewer institutions reported quarterly losses, lending grew at a modest pace, credit quality continued to improve, more banks came off the ‘Problem List,’ and fewer banks failed.”
