JPMorgan To Fire Thousands

JPMorgan To Fire Thousands

Tyler Durden on 02/24/2014 19:27 -0500

Following last year’s realization that mortgage origination as a product line is effectively dead (which has forced such origination dependent banks as Wells Fargo to return to subprime lending in hopes of keeping the revenue stream alive, knowing full well how it all ends), and that only investors and “all cash” buyers are keeping the myth of the housing recovery alive on their shoulders, banks fired tens of thousands of workers in the mortgage business hoping to stem the bottom line bleeding from the collapse in revenues. It turns out that they didn’t fire enough and/or that the housing market contraction was far worse than even the banks, in their most, pessimistic forecasts, had expected. Case in point: JPMorgan, which after firing 15,000 in its mortgage business, has just revealed it will fire thousands more.

From the FT:

Several thousand more cuts are planned, according to people familiar with the matter, and could be announced at JPMorgan’s annual investor day on Tuesday. They are part of a new efficiency drive at the largest US bank by assets that also encompasses staffing branches with fewer employees.

Profitability at JPMorgan remains stronger than at competitors such as Bank of America and Citigroup but the bank is looking to find new savings, partly because of technology that allows greater automation of clerical functions in branches and partly because of a plunge in demand for mortgage refinancings.

Rising interest rates have stifled demand, causing the biggest banks to cut tens of thousands of positions over the past two years. The additional cuts at JPMorgan are expected to number more than 2,000, evidence of the steep decline in demand even in the past 12 months.

The bank, which employs more than 250,000 people, is also looking to cut thousands of jobs in branches over time, though it expects to do so by attrition.

JPMorgan executives decided in the past 12 months to halt its branch-building programme, following a trend for banks to look online for future growth rather than to bricks and mortar.

We doubt many tears will be shed over the terminations, especially since JPM was the one bank holding out longer than most in hopes that things will finally change for the better and the bank’s “fortress” balance sheet will be able to isolate the firm’s workers. They didn’t, and it didn’t.

JPMorgan held out longer than rivals, filling in gaps in the market in Florida and California, in particular, before now joining the long list of banks to have scaled back their growth plans.

“It was awfully 20th century of them,” said Mike Mayo, analyst at CLSA Securities. “With such weak revenue growth – the worst in eight decades – banks need to find new ways to control expenses, which means finding other ways to streamline branches and other distribution. The last two years have seen the most branch closings in history.”

Yet while JPMorgan’s terminations – merely a stepping stone to even more layoffs in the future – mean the unemployment rate will continue to drop as most of the newly laid off will simply drop out of the labor force entirely, the biggest loser will be Wells Fargo, whose primary revenue line was and is mortgage origination. Well, was.

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We look forward to seeing just how the California bank, and largest mortgage originator in the US, will offset what is now clearly a secular collapse in mortgage demand as more and more Americans simply refuse to (or can’t) take out mortgages to buy homes whose prices have become inaccessible to all but a very select (0.1%) few.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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