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JPMorgan Chase Reported Strong Growth in Core Banking

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Oct. 15 2018, Updated 12:45 p.m. ET

Core banking

JPMorgan Chase’s (JPM) Consumer and Community Banking segment has risen at a relatively faster pace due to higher interest rate spreads. The division posted revenues of $13.3 billion in the fourth quarter—10.4% growth on a YoY (year-over-year) basis and 6.3% sequentially. The bank’s higher revenues were mainly driven by increased net interest income due to higher deposit margins and loan expansion across the card, merchant services, and auto lease volumes. The higher revenues were partially offset by softness in home lending.

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The revenues from the Consumer and Business Banking division grew 18% YoY to $6.4 billion due to higher deposit margins and balance growth. The Card, Merchant Services, and Auto division’s revenues increased 10% to $5.6 billion primarily benefiting from increased card net interest income, loan growth, and higher auto lease volumes.

However, the Home Lending division registered a massive YoY and sequential decline. The division’s revenues of $1.3 billion were 16% lower than the same quarter last year and 3% lower than the previous quarter.

What’s hurting home lending

The Fed’s hawkish monetary policy and rising property prices are hurting the mortgage loan demand. A rise in interest rates decreases a customer’s ability to afford a loan.

In the NAR’s (National Association of Realtors) monthly report, it revealed that the existing home sales in August were 5.34 million units—flat sequentially, but a fall of 1.5% YoY. The NAR noted that consumers continued to postpone their plans to buy homes amid higher house prices. New construction activities remained sluggish due to rising material and labor costs and land shortages. All of these factors pushed property prices higher.

Declining existing home sales and rising interest rates have been impacting the entire US banking industry’s (XLF) financials. Wells Fargo (WFC) reported a 19% YoY fall in its third-quarter mortgage banking revenues. Citigroup’s (C) North America Consumer Banking segment’s third-quarter revenues fell 1% YoY. Bank of America (BAC), which is scheduled to report its third-quarter results on October 15, will likely be impacted by the slowdown in the US mortgage market.

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