JPMorgan Chase & Co., the second- biggest U.S. bank, said profit rose 23 percent, higher than analysts estimated, as provisions for losses on mortgages, credit cards and other consumer loans fell $5.8 billion.
Third-quarter net income climbed to $4.42 billion, or $1.01 a share, from $3.59 billion, or 82 cents, in the same period a year earlier, the New York-based company said today in a statement. Twenty-two analysts surveyed by Bloomberg estimated adjusted earnings of 88 cents a share.
Even as provisions for future losses dropped, the bank charged off $1.2 billion on its home-equity and other mortgage loans as the U.S. unemployment rate remained near a 26-year high. JPMorgan also took a $1.5 billion loss on bad loans it was forced to repurchase from investors.
“We expect mortgage credit losses to remain at these high levels for the next several quarters,” Chief Executive Officer Jamie Dimon, 54, said in the statement. “If economic conditions worsen, mortgage credit losses could trend higher.”
JPMorgan rose to $40.75 in New York trading from $40.40 at the close on the New York Stock Exchange yesterday. The shares are down 3.1 percent this year through yesterday.
JPMorgan is the first of the largest U.S. banks to report earnings. Bank of America Corp. and Citigroup Inc., the first- and third-largest U.S. lenders by assets, respectively, may report adjusted earnings of $1.1 billion and $1.8 billion when they release results next week, the Bloomberg survey shows.
Fixed Income
Third-quarter revenue fell 11 percent to $23.8 billion. Fixed-income revenue was $3.1 billion, compared with $5 billion a year earlier and $3.6 billion in the second quarter.
“Revenues continue to be lower than I expected,” Charles Peabody, an analyst at Portales Partners LLC, said in an interview with Tom Keene and Ken Prewitt on Bloomberg Radio. “That’s a little bit disappointing and you’d like to hear something from management on the conference call today saying the underlying businesses are starting to show improvement.”
Peabody said he was expecting revenue closer to $25 billion.
Retail banking earned $907 million, compared with $1.04 billion during the second quarter and $7 million a year earlier. The division benefited from a reduction in provisions to $1.55 billion from $3.99 billion in the prior year, JPMorgan said.
Credit-card services earned $735 million, compared with $343 million in the prior three months and a $700 million loss a year earlier. JPMorgan reduced provisions against future losses in the business by $3.33 billion.
Investment Banking
Net income in investment banking declined 33 percent from a year earlier, to $1.29 billion in the third quarter from $1.92 billion the year before even after benefiting from the release of $142 million in reserves back into earnings. A year earlier, the bank set aside $379 million for reserves.
The investment bank contributed $1.29 billion of JPMorgan’s $4.42 billion in net income, or 29 percent. That compares with 29 percent in the second quarter and 54 percent in the third quarter of 2009.
Dimon kept the bank profitable throughout the financial crisis, relying on fee income to counter loan losses in mortgage lending and credit cards. The bank was the No. 1 underwriter of stocks and bonds in the U.S. in the first three quarters of 2010.
Losses, Writedowns
Financial companies have recorded losses and writedowns of $1.83 trillion stemming from the U.S. housing crisis and the highest U.S. jobless rate in 26 years, according to data compiled by Bloomberg. The pace of new problem loans eased over the last two quarters as the U.S. economy recovered, even after the federal government withdrew support from financial markets.
The U.S. jobless rate has held steady or fallen after peaking at 10.1 percent in October 2009, according to U.S. government data. It was 9.6 percent in September.
“You’re not really getting a lot of new people falling into unemployment, which stabilizes the credit-card portfolios,” said Paul Miller, a former examiner for the Philadelphia Federal Reserve Bank and an analyst at FBR Capital Markets. “Credit continues to be flat this quarter.”
The Federal Reserve’s policy of keeping interest rates low, which has helped boost bank earnings over the last six quarters, is beginning to make it harder for the biggest U.S. lenders to make money.
JPMorgan and other large banks, which have benefited from record low costs of funding mortgages and other assets, face a squeeze on net interest margins -- the difference between what they pay to borrow money and what they get for loans and on securities. Analysts say the margins may have peaked in the first half and that banks will struggle to replace high-yielding assets as they pay off.
Net interest margins fell by 26 basis points to 3.06 percent from the first to second quarters. The reduced margins, along with lower lending volumes, translated to a drop in net interest income of $1.02 billion from the first to second quarters.
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Even as provisions for future losses dropped, the bank charged off $1.2 billion on its home-equity and other mortgage loans as the U.S. unemployment rate remained near a 26-year high. JPMorgan also took a $1.5 billion loss on bad loans it was forced to repurchase from investors.
“We expect mortgage credit losses to remain at these high levels for the next several quarters,” Chief Executive Officer Jamie Dimon, 54, said in the statement. “If economic conditions worsen, mortgage credit losses could trend higher.”
JPMorgan rose to $40.75 in New York trading from $40.40 at the close on the New York Stock Exchange yesterday. The shares are down 3.1 percent this year through yesterday.
JPMorgan is the first of the largest U.S. banks to report earnings. Bank of America Corp. and Citigroup Inc., the first- and third-largest U.S. lenders by assets, respectively, may report adjusted earnings of $1.1 billion and $1.8 billion when they release results next week, the Bloomberg survey shows.
Fixed Income
Third-quarter revenue fell 11 percent to $23.8 billion. Fixed-income revenue was $3.1 billion, compared with $5 billion a year earlier and $3.6 billion in the second quarter.
“Revenues continue to be lower than I expected,” Charles Peabody, an analyst at Portales Partners LLC, said in an interview with Tom Keene and Ken Prewitt on Bloomberg Radio. “That’s a little bit disappointing and you’d like to hear something from management on the conference call today saying the underlying businesses are starting to show improvement.”
Peabody said he was expecting revenue closer to $25 billion.
Retail banking earned $907 million, compared with $1.04 billion during the second quarter and $7 million a year earlier. The division benefited from a reduction in provisions to $1.55 billion from $3.99 billion in the prior year, JPMorgan said.
Credit-card services earned $735 million, compared with $343 million in the prior three months and a $700 million loss a year earlier. JPMorgan reduced provisions against future losses in the business by $3.33 billion.
Investment Banking
Net income in investment banking declined 33 percent from a year earlier, to $1.29 billion in the third quarter from $1.92 billion the year before even after benefiting from the release of $142 million in reserves back into earnings. A year earlier, the bank set aside $379 million for reserves.
The investment bank contributed $1.29 billion of JPMorgan’s $4.42 billion in net income, or 29 percent. That compares with 29 percent in the second quarter and 54 percent in the third quarter of 2009.
Dimon kept the bank profitable throughout the financial crisis, relying on fee income to counter loan losses in mortgage lending and credit cards. The bank was the No. 1 underwriter of stocks and bonds in the U.S. in the first three quarters of 2010.
Losses, Writedowns
Financial companies have recorded losses and writedowns of $1.83 trillion stemming from the U.S. housing crisis and the highest U.S. jobless rate in 26 years, according to data compiled by Bloomberg. The pace of new problem loans eased over the last two quarters as the U.S. economy recovered, even after the federal government withdrew support from financial markets.
The U.S. jobless rate has held steady or fallen after peaking at 10.1 percent in October 2009, according to U.S. government data. It was 9.6 percent in September.
“You’re not really getting a lot of new people falling into unemployment, which stabilizes the credit-card portfolios,” said Paul Miller, a former examiner for the Philadelphia Federal Reserve Bank and an analyst at FBR Capital Markets. “Credit continues to be flat this quarter.”
The Federal Reserve’s policy of keeping interest rates low, which has helped boost bank earnings over the last six quarters, is beginning to make it harder for the biggest U.S. lenders to make money.
JPMorgan and other large banks, which have benefited from record low costs of funding mortgages and other assets, face a squeeze on net interest margins -- the difference between what they pay to borrow money and what they get for loans and on securities. Analysts say the margins may have peaked in the first half and that banks will struggle to replace high-yielding assets as they pay off.
Net interest margins fell by 26 basis points to 3.06 percent from the first to second quarters. The reduced margins, along with lower lending volumes, translated to a drop in net interest income of $1.02 billion from the first to second quarters.
http://jodnet.blogspot.com
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