According to The Financial Times, more layoffs are on the cards from JPMorgan Chase & Co. (JPM). It is expected that the company may announce its latest job cuts (mostly in mortgage banking unit) today on its Investors Day, which is scheduled at 8.30 am.
Raising home prices and increase in long-term interest rates have lowered the demand for home loans across the economy. Hence, new mortgage originations and refinancing activities are facing a setback. JPMorgan’s mortgage fees and related income declined approximately 40% year over year in 2013.
Further, with increased automation of banking activities, JPMorgan is planning to consolidate branches. In 2013, the bank had added around 16 branches to its network but it is now planning to stop the branch-building process and instead focus on online banking to drive growth.
Hence, the lowered loan demand and increased focus on online banking will expectedly result in more job cuts at JPMorgan.
Last year, during its Investors Day, JPMorgan had announced elimination of overall 19,000 jobs by the end of 2014. The majority of the job cuts were from the Consumer & Community Banking segment’s mortgage banking division.
Therefore, job cuts again in the mortgage banking division make us skeptical about the company’s anticipation of new home loan demand in the future. The loan demand could be much lower than what is being expected.
JPMorgan is striving to cut costs and improve profitability. Even though the company has reported increased profits over the years, persistent pressure on its top line and stringent regulations are weighing on its financial performance.
Further, JPMorgan’s hefty litigation settlements, such as $13 billion mortgage settlement deal with regulators, have been a drag on its 2013 earnings. With the company being burdened by legal settlements, we believe it could be taking appropriate precautionary measures to combat possible future legal setbacks.
Notably, with mortgage demand weakening in the U.S. in recent times, several other major banks including Bank of America Corp. (BAC), Wells Fargo & Co. (WFC) and Citigroup Inc. (C) have announced job cuts as well.
Currently, JPMorgan carries a Zacks Rank #3 (Hold).
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