| NEW YORK
NEW YORK 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.
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)