Friday, October 14, 2011

JPMorgan Rebuffs Reports That AG Settlement Is Imminent

JPMorgan Chase used its third-quarter earnings call with investors Thursday to rein in expectations about when a mortgage servicing settlement might be reached with state officials. CEO Jamie Dimon described the settlement talks as “getting bogged down” because of the many varying demands of each of the 50 state attorneys general, a couple of which have already pulled out of the negotiations because they disagree with the terms of the proposal under consideration. JPMorgan is one of five major mortgage servicers involved in the negotiations, and Dimon’s remarks don’t jibe with the flood of media reports coming out this week citing unnamed sources who claim a final settlement agreement is just days away. Several state attorneys general themselves have made public statements dismissing the unsubstantiated news that a deal is just around the corner. Reuters quoted Florida Attorney General Pam Bondi as saying on Wednesday, “I read this morning that we’re settling this tomorrow. I doubt that’s going to happen.” Dimon told his company’s investors, “We would love to have some kind of settlement. We think it’s actually good for everybody to get [it done] and move on,” but he was quick to add, “if it’s reasonable.” The New York-based bank reported third-quarter net income of $4.3 billion, compared with $4.4 billion over the same period last year. JPMorgan logged higher mortgage servicing expenses and lower servicing-related revenue in Q3 when compared to a year earlier. Servicing expense was up $292 million year-over-year. The company attributed the increase to higher core and default servicing costs. Approximately 65 percent of the servicing expense in Q3 was related to default costs, “which are expected to remain elevated,” JPMorgan explained in its earnings presentation to investors. Servicing-related revenue of $1.2 billion was down 10 percent from the third quarter of 2010, due to a decline in third-party loans serviced. The company also reported that it was out $314 million in Q3 for loan repurchases. That figure represents a 79 percent decline from a year earlier. “We do expect [repurchase] losses to remain at $350 million per quarter, but that may vary around the time of settlements and the like,” CFO Doug Braunstein told investors. Expenses within the company’s real estate portfolio were down 7 percent year-over-year, reflecting a decrease in the costs associated with foreclosed assets due to temporary delays in foreclosure activity, but Braunstein said he expects that to increase as foreclosures resume. “Consistent with recent trends, expect continued elevated default management and foreclosure-related costs in the mortgage banking” business line, JPMorgan told investors.

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