JPMorgan beats profit forecast but revenue weak

NEW YORK Wed Oct 13, 2010 3:27pm EDT

A sign is seen outside the JPMorgan office in Los Angeles, California, October 12, 2010. REUTERS/Lucy Nicholson

A sign is seen outside the JPMorgan office in Los Angeles, California, October 12, 2010.

Credit: Reuters/Lucy Nicholson

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Bad loans fall at JP Morgan

Wed, Oct 13 2010

NEW YORK (Reuters) - JPMorgan Chase & Co (JPM.N) reported quarterly earnings that could be difficult for banking rivals to match, but weak revenue highlighted feeble loan demand and declining trading volumes in the industry.

JPMorgan mostly boosted its profit by setting aside less money to cover bad loans. Net income rose 23 percent but Chief Executive Jamie Dimon said returns are "still not particularly good for a company of our size."

Like its major competitors, the second-largest U.S. bank is struggling to find ways to boost growth in its main businesses -- consumer lending and investment banking.

"People are concerned about where the revenue growth is going to come from," said Keith Davies, principal and research analyst at Farr, Miller & Washington. "I don't think this quarter does anything to alleviate those concerns."

JPMorgan, the first major lender to report third-quarter results, also faced numerous questions about the latest headwind to batter the industry -- allegations that thousands of home foreclosures may have been illegal because they were improperly documented.

A prolonged probe into foreclosure processes could damage the fragile housing market, Dimon warned.

Dimon said demand for investment banking services remained weak.

"There continues to be a little more uncertainty out there about both the economy and what the political landscape entails, and so we haven't seen a rush toward activity," he said on a conference call.

Small and mid-sized businesses are starting to borrow more from the banks, but larger companies are choosing to raise money from the capital markets, Dimon said.

Commercial deposit levels remain high as companies hoard cash, a sign that they are wary about the future.

JPMorgan posted third-quarter net income of $4.42 billion, or $1.01 a share, up from $3.59 billion, or 82 cents a share, a year earlier. Analysts on average expected 90 cents a share, according to Thomson Reuters I/B/E/S.

U.S. unemployment is hovering around 9.6 percent but does not seem to be getting worse, which means fewer consumers are falling behind on their credit card bills. This allowed JPMorgan to set aside much less money to cover bad loans -- $1.6 billion in the third quarter, compared with $5 billion in the same quarter last year.

The bank is dipping into reserves set aside for future credit losses because regulations require it to, but "we are taking down as little as we can ... because we're very cautious," Dimon said.

A TOUGH ACT TO FOLLOW

Analysts and investors said Citigroup Inc (C.N) and Bank of America Corp (BAC.N) may have trouble matching JPMorgan's results when they report next week.

"JPMorgan's headline number was great, but the revenue and loan balances are just not giving comfort to the street that the banks have found a firm footing," said David Dietze, chief investment officer at Point View Financial Services in Summit, New Jersey.

JPMorgan said its investment banking profit fell by a third to $1.2 billion, which could be a bad sign for rivals Goldman Sachs Group (GS.N) and Morgan Stanley (MS.N), which report results next week.

Fixed income trading, which fueled much of 2009's gains in investment banking revenue, posted a 38 percent decline in revenue. Wall Street trading profits are widely expected to fall this quarter.

JPMorgan's net revenue was $23.8 billion, below analysts' average estimate of $24.64 billion.

The bank's shares were down 0.5 percent to $40.28 in midday trading. Bank of America shares were down 1.2 percent at $13.36 on the New York Stock Exchange on Wednesday afternoon.

MORTGAGES

Dimon said he expects mortgage losses to remain high for the next several quarters and the bank has also put aside money to cushion litigation costs.

Profit in JPMorgan's mortgage banking and other consumer lending businesses fell 50 percent to $207 million, even as the bank set aside less money against loan losses in the unit.

The mortgage business is also under pressure as some legislators push for the largest mortgage lenders to suspend foreclosures across the United States, following allegations that some banks used shoddy paperwork to kick struggling borrowers out of their homes.

JPMorgan has identified some improper notarizations of affidavits used for foreclosures, Chief Financial Officer Doug Braunstein said in the conference call.

Dimon added, "We are pretty comfortable that at the end of the process, foreclosure was proper.

Like its peers, JPMorgan is facing changes to its business after U.S. financial reform passed in the summer. Worries that regulatory changes will trim some of the bank's most profitable businesses have weighed on JPMorgan shares lately.

Through Tuesday JPMorgan's shares were down 3 percent this year, while the broader KBW Bank Index was up 12.5 percent.

As a result of financial reform, the bank last month said it is moving about 45 traders who previously traded for its own account into a new unit within its asset management business.

(Reporting by Elinor Comlay; Additional reporting by Steve Eder; Editing by Derek Caney, John Wallace and Matthew Lewis)

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Comments (4)
Yuansavvy wrote:
“The mortgage business is also under pressure as some legislators push for the largest mortgage lenders to suspend foreclosures across the United States, following allegations that some banks used shoddy paperwork to kick struggling borrowers out of their homes” is a false statement as it is clear that banks have been filing false affidavits in courts claiming to be “holder of note and mortgage” to get ex-parte relief from the courts to foreclose on borrowers’ properties. While as Servicer, they really are Debt Collectors and must comply with Fair Debt Collection Practices act which prevents them from seizure of debtors’ assets without approval and consent of the owners. This is criminal conduct.

Banks foreclose illegally only to steal money for themselves and to avoid creating losses for each other instead of sending the loans back to the loan originators which would cause them all lose money – as each one would receive thousands of bad loans back.

This also points to the fact that all the banks have conspired to foreclose illegally rather than sending back their bad loans to each other from their servicing – the difference is in sending the loans back they lose money (buying the bad loans back) by foreclosing they make fees and the investors lose money. Now that government has bought all the bad loans, the taxpayers lose the money. YOU SEE THIS TRICK….

Oct 13, 2010 9:07am EDT  --  Report as abuse
JackMack wrote:
“Legerdemain,” noun: sleight of hand, trickery, any artful trick.

JP Morgan Chase’s “profit” is purely a result of “writing up” loan loss reserves, causing those funds to fall directly to the bottom line. This is not in any way driven by actual performance in the sense of revenues-minus-expenses.

2011 is going to be an extremely tough year for banks. Tier-1 capital ratios are grossly overstated, revenues are falling, the regulatory environment is changing radically and associated costs will increase, and more…

Great time to be a seller of these stocks in my opinion.

Oct 13, 2010 9:51am EDT  --  Report as abuse
ginchinchili wrote:
Consider this: In one quarter JP Morgan Chase’s profits rose 23% and yet the Republicans are insisting that the top 3% of income earners, the only group whose incomes have continued to rise over the last 30 years while everyone else has languished, need to continue the tax cut that has enabled them to pay less in income taxes than at any other time in our history. This is no casual relationship. This exemplifies the cornerstone of the Republican Party’s platform: trickle down economics.

Here is the specter that should concern all Americans. Now that the conservative Supreme Court was redefined “we the people of the United States” in the preamble of our Constitution as being those with enough money to influence elections, those individuals and corporations that hold the majority of our nation’s wealth are literally about to buy the government they want, a government that will pass legislation enabling them to make even more money at the expense of the rest of America.

The unsustainable record spending on the military will continue as will the prospects of war, which Republicans can’t seem to get enough of, even to the point of deceiving the country into going to war; prices of everything will continue to rise while jobs and salaries decrease for most Americans, except those in the top 3%; the continuing deregulation of our financial industry will march on unimpeded despite the billions it cost average Americans during the recent economic near depression; Americans will continue to lose their homes while banks continue to cheat us (Had a Republican been in the White House during the recent revelation about all the banking errors in home foreclosure procedures, it would all have been swept under the rug while banks throw more Americans out of their homes, in some cases due to banking errors); more people will lose their health care; more people will file for bankruptcy due to unaffordable health care, the single biggest reason for personal bankruptcy in the United States; more people will die because they won’t have affordable access to health care; fewer Americans will be able to afford higher education, except those children lucky enough to be born into the elite top 3%; a Republican dominated government will apologize to any oil company that harms our environment due to any oil spills caused by oil company deregulation. The destruction of America and its Middle Class goes on and on and on.

Consider this case in point. The United States is the most heavily medicated country in the world, our health care is the most expensive, fewer people have health care here than in any other modern country, and our government allows pharmaceutical companies to charge Americans more for their drugs than any other country. It’s no coincidence that the owners of those pharmaceutical companies are among that top 3% who have the best health care in the world, whose income continues to rise, who can afford to send their children to the best colleges, who can afford to finance a candidate’s political campaign in return for a guarantee that the candidate, once elected, will lower their taxes and keep from regulating their industry. Democrats tried to pass a bill allowing Americans to buy their drugs from Canada–same drugs, cheaper price–but the Republicans stopped it because the pharmaceutical industry willed it–it would cut into their profits.

This is how America works now. This is what the country of our Founding Father’s has become. That top 3% of America’s wealthy are pouring money into the campaigns of Republican candidates so that the same 3% can regain full control of our government and keep trickle down economics firmly in place. Run enough political ads and they can get anyone elected. Put Republicans back in power and this is what you’ll get. Democrats have their problems, but there’s no question that they are more interested in helping the Middle Class where as Republicans are only interested in helping the top 3%.

Oct 13, 2010 10:49am EDT  --  Report as abuse
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