Fitch: JPMorgan Chase Reports Stronger 1Q13 Earnings on Lower Revenues
NEW YORK -- April 15, 2013
JPMorgan Chase & Co. (JPM) recorded net income of $6.5 billion for 1Q13, up
15% from the prior quarter and up 33% from the prior year, according to Fitch
Ratings. Performance was supported by strong loan and deposit growth, expense
controls and continued stabilization in credit, including a $1.15 billion
pre-tax benefit from lower mortgage and credit card reserves. The quarter was
less affected by significant items such as debit valuation adjustment (DVA)
which was $126 million for the quarter. Total expenses were down on both a
sequential and year-on-year basis to $15.4 billion.
The Corporate and Investment Bank (CIB), which combines the former Investment
Bank and Treasury and Security Services segments, had solid performance for
the quarter with revenues and net income, excluding DVA of $129 million, of
$10.0 billion and $2.5 billion, respectively. Results for the CIB were down
slightly from 1Q12, which was a very strong quarter. Investment banking fees
were up 4%, primarily as a result of lending, while markets and investor
services revenues were up modestly excluding DVA. The CIB average VaR declined
to $62 million due to run-off of the CIO synthetic credit portfolio and lower
volatility in the look-back period. As the first quarter is typically the
strongest, Fitch would anticipate CIB performance to moderate throughout the
Results for the Consumer and Community Banking (CCB) segment, which includes
the former Retail Financial Services and Card and Auto segments, including
mortgage, were up on a sequential basis owing mainly to lower expenses and
loan loss provisions. Average loans within the segment continued to decline
and came in at $418.3 billion, while average deposits continued to grow and
were $441.3 billion. Mortgage Bank produced strong results within the CCB
segment, with net income of $673 million, despite higher production volumes as
margins tightened and expenses increased. Fitch anticipates that mortgage
banking activity will moderate during 2013 as refinance activity slows. Card,
merchant services, and auto reported solid net income of $1.2 billion, on the
back of flat revenues and lower expenses. Fitch regards credit quality in
cards to be strong, despite the slight increase in the credit card charge-off
rate during the quarter.
Commercial Banking (CB) remains a very steady performer within JPM, and had
net income of $596 million. Loan growth was strong in the segment with end of
period loan balance up 13% year-on-year, though relatively flat quarter over
quarter. Corporate deposits, however, were down slightly to $196.0 billion.
Credit quality was stellar, with virtually no losses during the quarter. Asset
Management (AM) generated strong results with net income of $487 million. This
reflects solid net inflows of $28 billion. Assets under management (AUM)
reached $1.5 trillion during the quarter.
The bank's core net interest margin, which excludes market-based activities,
was down 2 basis points to 2.83% from 4Q12 given the continued low interest
rate environment and more limited reinvestment opportunities. JPM is
forecasting further NIM compression for the full year 2013, which Fitch
believes is highly likely absent a change in the interest rate environment.
JPM's estimated Basel III Tier 1 Common ratio rose to 8.9%, while its Basel 1
Tier 1 Common declined to 10.2% following the adoption of the Federal
Reserve's Market Risk Rule, commonly referred to as Basel 2.5. JPM also
announced its intention to raise its dividend to $0.38 a share from $0.30
share and in the 1Q13 repurchased $2.6 billion of common stock. The firm has
$6.0 billion of share repurchase authorization for the next year. Fitch
regards JPM's capital levels to be consistent with its current ratings and
would expect the bank to achieve full compliance with Basel III requirements,
inclusive of additional buffers as a globally systemically important financial
institution, well ahead of required implementation. JPM has indicated it
expects to meet Basel III liquidity requirements by year-end 2013.
While the bank's financial results were minimally affected from the CIO's
legacy synthetic credit portfolio (SCP), Fitch believes JPM may still incur
regulatory and litigation costs associated with activities related to the CIO.
The recent U.S. Senate investigation into this activity may open the door on
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Joo-Yung Lee, +1-212-908-0560
Fitch Ratings, Inc.
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Brian Bertsch, New York, +1 212-908-0549
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