JPMorgan Tops Street Expectations

By Associated Press and BusinessWeek staffJPMorgan Chase & Co. (JPM) posted a 36% jump in second-quarter profit Thursday, easily surpassing Wall Street expectations as strength in its core consumer and investment banking businesses offset a jump in credit losses.

But some experts cautioned Thursday that the firm faces continued challenges on the credit front.

"Such investment-banking results -- which we doubt will be sustainable -- offset the effect of deteriorating credit performance at JPM's core consumer and commercial banking operations," said analysts for Standard & Poor's Ratings Services in a note Thursday.

The report from the New York-based banking giant followed strong earnings earlier in the week from Goldman Sachs Group (GS). JPMorgan reported net income of $2.72 billion, or 28 cents per share, up 36% from $2 billion, or 53 cents per share, a year earlier. Revenue rose 39% to $25.62 billion from $18.4 billion.

Earnings per share fell despite an increase in profit because the company had more stock outstanding in the most recent quarter ending June 30.

Analysts forecast earnings of 4 cents per share on revenue of $25.89 billion for the quarter.

The profit came despite a $1.1 billion charge, or 27 cents a share, as JPMorgan repaid in full $25 billion in loans it received from the government as part of the Troubled Asset Relief Program, or TARP. The bank was also hit by a 10-cents-a-share FDIC special assessment penalty.

JPMorgan shares were down 1.05% to 35.88 a share in late morning trading Thursday.

CEO Jamie Dimon said he was "pleased" by the results, even as the company's latest numbers were weighed down by higher credit costs, particularly in the company's consumer lending and credit card businesses.

The bank said it set aside $9.7 billion for credit losses, up from $4.29 billion a year earlier but down from the first quarter's $10 billion.

Standard & Poor's equity analyst Stuart Plesser reiterated a buy rating on JPMorgan Thursday. (S&P's Equity Research unit operates separately from S&P Ratings.) "We expect JPM to continue to post strong investment banking results reflecting ongoing corporate and government capital raises," Plesser wrote in a note. "Although consumer credit deterioration is likely to continue for the remainder of 2009, JPM's core earnings power appears strong."

But influential banking analyst Richard Bove of Rochdale Securities in Lutz, Fla., pointed out a number of areas in which he thinks JPMorgan came up short. "[T]he company had sequential declines in loans, deposits, and margins. Its trading revenues were very disappointing," he wrote in a note Tuesday. "The better than expected showing in the bottom line was due to a fuzzy set of capital gains numbers."

Bove continues to rate the shares "buy".

Bove said the direction of non-performing assets was not good for the company, and added that regional bank stocks were more likely to follow the patterns of JP Morgan than Goldman Sachs. "Thus, one must be very cautious about these stocks at this point," he wrote.

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