A couple of weeks ago, in the column, "2Q Report Shows Wells Fargo Is Doing Well," I wrote about the nascent broadening of the loan book at Wells Fargo (WFC) as it moves away from an almost unilateral focus on the residential mortgage business. (Wells Fargo is part of TheStreet's Action Alerts PLUS portfolio.)
Although this migration away from concentrated risk is very positive for the bank, it also means it is beginning to challenge the other money centers, especially JPMorgan Chase (JPM), in other loan sectors, and is logically preparing to increase its investment banking activity.
I'll address the investment banking issues in a separate column and devote this one to the changes in the business focus at Morgan that are becoming increasingly evident and are most likely at least partially a response to the business changes at Wells.
In the second quarter of this year, Morgan's retained book of first trust residential mortgages surged by $15 billion to about $170 billion, about a 10% increase just for the quarter.
And this is in addition to the increase of about 7.5% from the fourth quarter of 2015 to 1Q of 2015. In the past two years, the increase has been about 30% in total.
By comparison, Wells, the dominant mortgage lender in the country, increased its book of retained first trust residential mortgages by less than 2% in 2Q, about 4.3% since the end of last year, and by only about 7.5% in the past two years.
Put most succinctly, Morgan's mortgage business is accelerating while Wells' is decelerating.
This pattern is a clear sign that Morgan has decided to aggressively challenge Wells' dominant position in that market, and that's good for Morgan and consumers.
Across all loan sectors, Morgan's total loan book rose by about 3.6% in 2Q, about 5% since the beginning of the year, and about 10% over the course of the past two years.
By comparison, Wells' total loan book rose by about 3.25% in 2Q from 1Q, about 3.7% for the year so far, and about 9% for the past two years.
This indicates that Morgan is competing more aggressively across the entire universe of domestic loan-making activities and winning in the process.
It's not all good news for JP Morgan, though, as a very disturbing trend in its foreign business makes clear, and may be the reason for the company moving more aggressively to expand its domestic activities.
Since the 2008 financial crisis, and until recently, Morgan's primary business focus was on capitalizing on the fact that Citigroup (C), having been much more severely hurt by the crisis and focusing on legacy issues from it as a result, was incapable of maintaining its historically strong international business.
Morgan had been moving to displace Citi as the primary U.S.-based international bank.
Something has gone wrong with these plans, though, as is evident in the call reports, although I don't know what the problem is.
As I wrote in the column focused on Wells, both Wells and Morgan suffered declines in deposits during 2Q due to withdrawals by foreign entities, but the decline at Morgan was much larger and part of a pattern that's been in place for about a year.
In 2Q, foreign deposits domiciled at Morgan branches in the U.S. fell to about $6 billion from $8 billion in 1Q, and from about $15 billion a year ago.
The bigger issue, though, is foreign deposits held in Morgan offices outside the U.S.
In the second quarter alone, the value of those deposits fell by about 16%, to $260 billion, from about $310 billion. In the past two years, the value of foreign deposits as a percentage of total deposits has declined to 18% from 28%, with the existing foreign deposits accelerating. It's also down from about 40% in 2008.
This is indicative of a huge problem with Morgan's international banking, but again, I don't know what that is. It appears, however, that taking international business away from Citi has been more difficult than Morgan anticipated.
Citi's foreign deposits increased from the first quarter to the second to about $500 billion from about $480 billion; and as a percentage of total deposits is about 53% vs. 58% three years ago. This is down from a high of about 68% in 2008.
Anecdotally, it appears that both Citi and Morgan have lost foreign deposits and business since the 2008 financial crisis to HSBC Holdings (HSBC).
HSBC and Citi have traditionally been the dominant international bankers.
All considered, Morgan's domestic banking business looks excellent, while its international business looks like it's suffering an existential crisis.