Bank revenue slows

JPMorgan Chase and Wells Fargo, bellwethers for the banking industry, reported record earnings Friday, but those numbers masked troubling declines in revenue.

Revenue fell slightly at both banks, and the earnings gains came largely from slashing expenses and related measures. JPMorgan socked away less to cover potential lawsuits and released some of the money set aside for bad loans. Wells cut back on office space.

The results show that in an era of sluggish loan demand and increased government regulations, banks must stay lean if they want to boost earnings. The industry has come a long way since the panic of the financial crisis, but the pattern it’s settled into is one of cutting expenses and maintaining revenue rather than turbocharged growth.

For both banks, analysts homed in on a slowdown in the mortgage business. For the past several quarters, the banks have enjoyed a boom in mortgage refinancings as homeowners lined up to take advantage of low interest rates. That pace now appears to be stalling, if not slowing.

At JPMorgan, mortgage applications fell about 8 percent over the quarter to $60.5 million. They were also down about 8 percent at Wells – to $140 million. Compared with a year earlier, applications at JPMorgan were up just 1 percent. For Wells, however, applications were down 25 percent.

Standards for getting a mortgage are still tight. Some homeowners might not qualify for a refinancing, because of changes to their personal finances, and others might not be able to afford one.

When homeowners refinance their mortgage, they get a lower interest rate that helps them save money over time. But getting a refinanced loan also can cost money upfront, in fees to the bank.

Analysts questioned whether the homeowners most motivated or most qualified to refinance already have – “the low-hanging fruit,” as FBR Capital Markets analyst Paul Miller put it.

Tim Sloan, chief financial officer at Wells, estimated that 25 to 30 percent of Wells’ mortgage borrowers were still eligible for a refinancing.

“It’s a function of what their finances look like,” Sloan said. “Maybe they’ve switched jobs and haven’t had the opportunity.”

Other people might not be aware of what’s available.

The government is trying to raise that awareness. The Federal Housing Finance Agency on Thursday announced it would extend the four-year-old Home Affordable Refinance Program and launch a national campaign to promote it. The program aims to encourage struggling borrowers to refinance loans at a lower rate. About 2.2 million people have refinanced their mortgages through the program since April 2009. Officials had hoped that at least 4 million borrowers would participate.

It’s not clear what effect HARP might have: The big banks are already reaching out to their customers who would qualify for a refinance.

“Who knows how much it will really help,” said Guy Cecala, the publisher of Inside Mortgage Finance.