Biggest banks back to black in Fed-fueled recovery

Momentum Builds

“Momentum continues to build in the housing market,” JPMorgan analysts led by John Sim wrote in a report last week. “Builders are reporting the best sales conditions they’ve seen in more than five years.”

Home values climbed by more than $1.3 trillion to $23.7 trillion since the end of 2011, according to Zillow, and prices will rise by 3.3% after an estimated 4.5% jump last year, based on estimates of 15 economists and housing analysts surveyed by Bloomberg.

Property sales are also accelerating. Existing home transactions increased to a 5.10 million annual rate last month, the highest level since November 2009, according to the median forecast of 69 economists surveyed by Bloomberg before the National Association of Realtors reports the figure at 10 a.m. New York time.

The recovering real estate market will further drive profits at the largest banks for up to 18 months, said FBR Capital Markets Corp. analyst Paul Miller.

“Given where rates are, up to $2.5 trillion loans have an incentive to refinance,” Miller said. “We’re only refinancing about $1 trillion to $1.3 trillion loans a year.”

JPMorgan Chief Executive Officer Jamie Dimon said on an October conference call that mortgage production margins are “very high” at well over 2%.

Historic Margins

While that’s narrowed about 0.4 percentage points in the last quarter, it compares with margins over time of 0.65 percentage points, the bank’s Chief Financial Officer Marianne Lake said last week on the earnings call with analysts. Mortgage fees and related revenue surged to $2.03 billion in the quarter from $723 million a year earlier.

U.S. Bancorp, based in Minneapolis, is adding staff to handle refinancing volume, CEO Richard Davis said on a conference call last week. “We’re putting more and more into that business,” Davis said.

Even Bank of America, whose ill-timed purchase of Countrywide Financial Corp. in 2008 has led to many of its losses, wants to grow the home-loan business, Chief Financial Officer Bruce Thompson said in a media call last week.

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