Friday, January 15, 2010

JP Morgan Mortgage Barnacles

JPMorgan Chase (JPM) announced results and included some information on mortgage loss mitigation.

Jamie Dimon, Chairman and Chief Executive Officer commented that by March 31, 2010“We will have opened 51 Chase Homeownership Centers across the country, and we already have more than 14,000 employees dedicated to mortgage loss mitigation.”

These guys are not generating new positive spread business. While the costs do not show up in loan losses they do balloon up the non interest expense and rob the income statement. Not sure what the 51 Chase Homeownership Centers will cost but 14,000 employees will be expensive. If you assume say $50,000 per year in total compensation that will be an annual cost of $700 million; before bonuses of course.

Judging a banks loan portfolio quality is difficult at best. If we can track how many people are involved in the process of mortgage loss mitigation we can at least determine how efficiently they are responding to the problem. In the mean time shareholders bleed.