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Pandemic’s Impact on JPMorgan, Wells Fargo

The economic turmoil created by the COVID-19 pandemic continued to test the mettle of banking giants JPMorgan Chase and Wells Fargo in Q2 2020. However, the quarter ended with JPMorgan posting record revenue and Wells Fargo posting a steep decline.

JPMorgan announced $33.8 billion in Q2 2020 revenue, resulting in a profit of $4.69 billion. However, while the latest revenue result was greater than the $29.4 billion from Q2 2019, this quarter’s profit was smaller than the $9.6 billion figure from the previous year.

JPMorgan’s retail banking division received a $176 million loss in Q2 2020, compared with its $4.2 billion profit one year earlier. But its mortgage activities were a bright spot, with home lending net revenue up 51% year-over-year to $1.7 billion. The company mostly credited this upswing to higher product margins, while Chairman and CEO Jamie Dimon cited “the strength of our digital platform” as being key to its home lending profits.

“As one of the world’s largest financial institutions, our actions are critical to keeping the global economy going—from processing $6 trillion in payments each day worldwide to keeping three-quarters of our nearly 5,000 branches open and safe—to meet individuals’ financial needs,” Dimon stated. “During these unprecedented times, JPMorgan Chase remains resilient and steadfast in using all of our resources to support our colleagues, clients, and communities across the globe.”

Wells Fargo Q2 2020 revenue was $17.7 billion, down from $21.6 billion one year earlier. The company’s mortgage banking income was $317 million, a steep plummet from the $758 million in Q2 2019.

“The decline in mortgage banking income reflected a lower valuation of our mortgage servicing rights asset as a result of assumption updates, including higher prepayment assumptions and higher expected servicing costs due to higher projected defaults,” said Wells Fargo in its earnings report. “Additionally, net servicing fees were lower due to payment deferrals and fee waivers instituted in response to the COVID-19 pandemic. These declines were partially offset by higher net gains on mortgage loan production activities.”

Wells Fargo added that its production margin on residential held-for-sale mortgage loan originations increased to 2.04% from 0.98% in Q2 2019. Residential held-for-sale mortgage loan

originations increased $43 billion from last year’s $33 billion, primarily based on the lower mortgage loan interest rates. Mortgage originations for the quarter totaled $59 billion versus $53 billion one year earlier, with 66% of its applications coming in as refinance requests compared to 44% in the previous year.

“We are extremely disappointed in both our second quarter results and our intent to reduce our dividend,” said Wells Fargo CEO Charlie Scharf. “Our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter, which drove the $8.4 billion addition to our credit loss reserve in the second quarter. While the negative impact of the pandemic is unprecedented and many of our business drivers were negatively impacted, our franchise should perform better, and we will make changes to improve our performance regardless of the operating environment.”

About Author: Phil Hall

Phil Hall is a former United Nations-based reporter for Fairchild Broadcast News, the author of nine books, the host of the award-winning SoundCloud podcast "The Online Movie Show," co-host of the award-winning WAPJ-FM talk show "Nutmeg Chatter" and a writer with credits in The New York Times, New York Daily News, Hartford Courant, Wired, The Hill's Congress Blog and Profit Confidential. His real estate finance writing has been published in the ABA Banking Journal, Secondary Marketing Executive, Servicing Management, MortgageOrb, Progress in Lending, National Mortgage Professional, Mortgage Professional America, Canadian Mortgage Professional, Mortgage Professional News, Mortgage Broker News and HousingWire.

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