Updated with comments from FIG Partners analyst John Rodis and afternoon market action.
NEW YORK ( TheStreet) -- Third-quarter bank earnings will feel an unwelcome jolt as mortgage volume has fallen off a cliff.
Banks large and small have been preparing investors for difficult revenue comparisons by preannouncing the bad news. JPMorgan Chase (JPM - Get Report) CFO Marianne Lake at a conference on Sept. 9 said the bank expected its mortgage origination business to post a net operating loss for the second half of 2013.
Cardinal Financial (CFNL - Get Report) of McLean, Va., late on Thursday announced that its third-quarter mortgage loan originations had declined by roughly 40% from the second quarter, and that "the marketing gain percentage for mortgages sold has decreased during the third quarter due to increasing competitive pressure related to the changing market conditions."Cardinal also said "Expense reduction and revenue enhancement measures have been and will continue to be implemented to offset the decrease in mortgage production and the decline in the marketing gain percentage," but that the bulk of the benefit of the cost declines wouldn't be realized until the fourth quarter. The bank was downgraded by several sell-side analysts on Thursday and Friday, and its shares dropped 5% Friday to close at $16.76. Wells Fargo (WFC - Get Report), the nation's leading mortgage lender, has announced 4,800 layoffs so far this quarter, with the bulk coming from its mortgage production staff, as volume declines. As mortgage revenue declines, some of the expense cuts are "automatic," with many lenders being compensated strictly on commissions, but many staffers involved in processing loan files are also losing their jobs. Large regional banks will also be cutting back staff. BB&T (BBT) CFO Daryl Bible said at a conference last week that it would be migrating its direct retail mortgage loan originations into a mortgage company subsidiary. While other large regionals have "
Tough Comps for the Big BanksAtlantic Equities analyst Richard Staite projects a 55% year-over-year decline in third-quarter mortgage production revenue for the eight large-cap U.S. banks he covers, which in addition to JPM and Wells Fargo include Bank of America (BAC - Get Report), Citigroup (C - Get Report), Goldman Sachs (GS), Morgan Stanley (MS), PNC Financial Services Group (PNC) and U.S. Bancorp (USB). That's a huge figure, reflecting in part the spike in refinancing activity in the third quarter of 2012, however, Staite expects mortgage revenue for the group to decline 45% quarter-over-quarter.
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