Investors Shrug Off JP Morgan's Solid Showing

Shares declined Wednesday despite the financial giant's better-than-expected profit. One analyst expressed caution on increasing credit pressure

J.P. Morgan Chase & Co. (JPM) on Oct. 18 reported stronger third quarter results, as investment banking fees offset weakness in mortgage banking.

The New York financial services giant said third-quarter net income amounted to $3.3 billion, or 92 cents per share compared with net income of $2.5 billion, or 71 cents per share, for the third quarter of 2005. The mean analyst estimate for the recent quarter's earnings per share had been 85.5 cents, according to the San Francisco research firm StarMine.

The prior-year quarter includes credit losses related to Hurricane Katrina of $248 million after-tax, or 7 cents per share. In addition, after-tax merger expenses of $30 million and $137 million were recorded in each period, respectively.

The company's stock slid 2.3% to $46.88 per share on the New York Stock Exchange after the news.

"We are encouraged by stable performance in most business segments and solid credit quality, but we remain cautious due to the challenging interest rate environment and increased credit pressure that we expect in the quarters ahead," said Standard & Poor's analyst Mark Hebeka in a research note. He raised his 2006 earnings per share estimate to $3.66 from $3.62 and maintained his hold opinion on the stock. (S&P, like, is owned by The McGraw-Hill Companies.)

J.P. Morgan benefited from record investment banking fees, increased asset management, administration, and commissions revenue, and higher other income, according to a press release Oct. 18. Offsetting this growth was lower credit card income, decreased principal transactions and lower mortgage banking results. Mortgage Banking net loss was $83 million compared with net income of $53 million in the prior year.

In spite of its strong results in commodities, J.P. Morgan's net income from investment banking amounted to $976 million during the quarter, compared to $1.068 billion during the same period last year. Retail financial services gained to $746 million from $656 million. Another of J.P.'s major business segments, card services, took in $711 million compared to $541 million.

"Our overall results continue to benefit from a favorable credit environment, which we do not expect to continue. We continue to focus our business planning around a return to normal, or even adverse, credit conditions across all our businesses," said company CEO Jamie Dimon in the press release.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE