July 15, 2010
JPMorgan Chase Exceeds ForecastsBy ERIC DASH
JPMorgan Chase & Company kicked off earnings season for the nation’s big banks on Thursday with news of a strong gain in second-quarter profit.
After powering ahead for the last year on the strength of its Wall Street trading operations, JPMorgan said its net income rose 76 percent, to $4.8 billion, from $2.7 billion in the period a year earlier. Earnings rose to $1.09 a share, from 28 cents.
The results benefited from a one-time release of $1.5 billion in loan loss reserves.
JPMorgan shares, however, were down 1.4 percent, as concerns about weak manufacturing pushes the entire market lower.
Revenue declined 8 percent, to $25.6 billion, in the second quarter, from $27.7 billion in the period a year ago.
The results — which exceeded of analysts’ expectations of 70 cents a share — were the start of a rush of quarterly results from major banks. Citigroup and Bank of America are scheduled to report results on Friday, with Goldman Sachs, Morgan Stanley and Wells Fargo to follow next week.
JPMorgan emerged from the global financial crisis bigger, stronger and healthier than many rivals. But like other big banks, it still confronts fallout from the recession, with potential losses on its portfolio of home mortgages and consumer loans. The jittery markets, unnerved by the European debt crisis and May’s flash, tempered trading results for JPMorgan and its main rivals.
Even so, Jamie Dimon, JPMorgan’s chairman and chief executive, seemed cautiously optimistic that the worst for his bank — and the industry — was behind. For the first time since the crisis began, JPMorgan released money from the reserves it had set aside to cover future losses.
The $1.5 billion benefit, or an after-tax gain of 36 cents, came from a reduction in loan loss reserves amid a modest improvement in housing and job markets, as well as signs that corporate borrowers were in better shape.
“I have always called that income paper,” Mr. Dimon told investors on a conference call. “It means nothing. Put it this way, we will take down reserves only if we have to.”
Still, Mr. Dimon stopped short of saying the economy was turning around. “Although we are gratified to see consumer lending net charge-offs and delinquencies decline, they remain at extremely high levels,” he said. “It is too early to say how much improvement we will see from here.”
With the permission of its regulators, the bank bought back more than $500 million in shares in the second quarter. Tellingly, however, it did not did not raise its dividend. Mr. Dimon said late last month that he planned to await further improvement in the economy and more clarity about minimum capital requirements before contemplating an increase. He had previously hinted such a move could come in the second half of 2010.
As the Senate moves to pass passing the financial reform bill and send it to President Obama, Mr. Dimon said that many challenges and uncertainties remained that could result in unintended consequences for the bank’s businesses and the broader markets.
“With a need for global regulatory coordination and hundreds of rules to be written, increased focus is critical in order to implement these reforms in a way that protects consumers and the competitiveness of the U.S. financial system, while ensuring the flow of safe and sound credit,” he said in the statement.
Mr. Dimon did not present a full estimate of how much the new financial rules would cost his bank, although the credit and debit card business could face bigger hits than the bank previously anticipated. Analysts say the full set of reforms could wind up lowering earnings by as much as 11 percent.
It was a difficult second quarter in some ways. JPMorgan set aside about $550 million to cover the cost of a one-time tax on the 2009 bonuses of workers based in the Britain.
The investment bank posted a $1.3 billion profit, about 44 percent less that it earned in the first quarter. After making money every day in the first three months of the year, trading results in fixed-income, commodities and currency were much weaker as the market swung wildly. The bank benefited, however, from releasing about $325 million originally set aside to cover losses.
Chase’s consumer businesses, meanwhile, showed modest improvement in its results. The credit card division posted a $343 million profit, after several quarters of bleeding red ink. Bank executives raised their projections of the cost of new credit card legislation to $750 million, from about $500 million.
The retail bank earned about $1 billion, in part because the bank set aside less money to cover future mortgage and home equity losses. Revenue fell by about 2 percent, as the bank took in less fee income on deposit accounts.
Mr. Dimon said that the loan losses in these units remained extremely high. “Returns in our consumer lending businesses are still unacceptable,” he said.
Even so, JPMorgan has emerged from the crisis in better shape than most of its peers, and perhaps no bank chief executive fared better than Mr. Dimon.
Mr. Dimon earned that distinction by playing as much defense as offense during the housing boom, which insulated JPMorgan more than most when the boom went bust. When the bust became a full-blown financial crisis, Mr. Dimon bought up Bear Stearns and then Washington Mutual, the giant thrift, bolstering his position in investment and retail banking while others were shrinking.
During the second quarter, he continued his expansion plan. He scooped up a European commodities trading unit from the Royal Bank of Scotland and is currently in talks to buy a Brazilian money manager. Meanwhile, Mr. Dimon signaled his international ambitions with the appointment of a top lieutenant to a new post overseeing an aggressive push into Brazil, China and a dozen or so other emerging markets.
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