JPMorgan Chase Profit Rises 67% on Lower Credit Costs, Beating Estimates
First-quarter net income climbed to $5.56 billion, or $1.28 a share, from $3.33 billion, or 74 cents, in the same period a year earlier and from $4.83 billion, or $1.12, in the fourth quarter, the New York-based company said today in a statement. The results beat the average per-share estimate for adjusted earnings of $1.15 by 26 analysts surveyed by Bloomberg.
Reserve releases, money the bank decides it no longer needs to hold against future losses, accounted for $2.55 billion, or almost half, of the profit. Chief Executive Officer Jamie Dimon, 55, has said he doesn’t consider reserve releases as “quality” earnings because they don’t represent growth in the bank’s businesses.
“I thought it was a good quarter, but it’s just not a quarter that’s going to get people excited,” said Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and analyst at FBR Capital Markets in Arlington, Virginia. “It was very noisy,” he said, referring to the earnings attributable to the reserve releases, which accounted for more than 40 cents of the per-share profit.
Shares of JPMorgan fell 47 cents, or 1 percent, to $46.17 at 2:53 p.m. in composite trading on the New York Stock Exchange. The stock was up 10 percent this year before today.
About 29 cents of the per-share earnings were from the bank’s $2 billion draw on credit-card reserves. JPMorgan may record one more “strong quarter” of reserve releases from its credit-card division before they taper off in the third quarter, said Shannon Stemm, an analyst with Edward Jones & Co. in St. Louis who rates the stock “buy.”
Provisions for credit losses dropped 83 percent to $1.17 billion as defaults and late payments declined. JPMorgan posted a record $17.4 billion in earnings last year in part by releasing about $7 billion of reserves against bad loans back into income as the U.S. economy improved.
Almost 43 percent of JPMorgan’s net income in the first quarter came from its investment bank, where earnings fell 4 percent to $2.37 billion. Those results were up from $1.5 billion in the fourth quarter as the bank took advantage of volatility in the market caused by the European debt crisis and turmoil in the Middle East.
First-quarter revenue fell 8 percent to $25.8 billion. Fixed-income and equity markets revenue was $6.6 billion, compared with $6.9 billion a year earlier and $4 billion in the fourth quarter.
The retail bank posted a $208 million loss. Dimon said in the statement that the business had “good underlying performance” that was “more than offset by the extraordinarily high losses we still are bearing on mortgage-related issues. Unfortunately, these losses will continue for a while.”
The bank took a $1.1 billion charge and may add as many as 3,000 employees to comply with a consent agreement with federal bank regulators over JPMorgan’s foreclosure practices announced today, Dimon and Chief Financial Officer Douglas Braunstein told reporters on a conference call.
Although the expense was a one-time charge, “that’s an asset that’s continually fair-valued, so we could see further charges or gains from that line item in the future,” Stemm said. “We absolutely could see further charges over the next couple of quarters on mortgage issues.”
Bank of America
JPMorgan is the first of the largest U.S. banks to report earnings. Citigroup Inc., the third-biggest behind JPMorgan and Bank of America Corp. (BAC), may report first-quarter profit of $2.78 billion when it releases results on April 18, the survey of analysts shows. Charlotte, North Carolina-based Bank of America may report a profit of $2.99 billion on April 15.
Thirty-day delinquency rates on credit cards dropped to 3.57 percent from 5.6 percent in the same quarter in 2010 and 4.1 percent in the fourth quarter. The rate of credit cards charged off as bad debt also fell, to 7 percent from 11.8 percent the prior year and 7.9 percent in the previous quarter.
JPMorgan’s credit-card division, which lost money for all of 2009, generated $1.34 billion in profit, or 24 percent of net income for the quarter.
The loss in retail banking, which includes home loans and checking accounts, compared with $708 million of profit during the fourth quarter and a $131 million loss a year earlier. The division benefited from a $2.4 billion reduction in provisions to $1.3 billion, JPMorgan said.
Home prices, which stabilized early last year, have fallen every month since the middle of 2010 and may slow reserve releases, which are determined in part by economic forecasts, said Jason Goldberg, a senior analyst with Barclays Capital in New York.
“The most important things should be moving in the right direction, but you’re not yet firing on all cylinders,” Goldberg said.
Loan growth remains slow and net interest margins, which measure the profitability of lending, continue to narrow at U.S. banks. Bank loans and leases fell $87.4 billion to $6.97 trillion from the end of 2010 through March 30, or 1.3 percent, according to Federal Reserve data.
Net Interest Margin
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.
The net yield on interest-earning assets -- what the bank collects on interest on loans and securities minus what it pays out on deposits and other borrowings -- rose to 2.89 percent in the first quarter, from 2.88 percent in the fourth quarter and 3.32 percent a year earlier.
“In aggregate, it’s kind of lackluster,” said Moshe Orenbuch, a bank analyst for Credit Suisse Group AG in New York. “Net interest is still declining. Mortgage-banking revenues are going to be under pressure because volumes are under pressure and spreads are under pressure.”
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