JPMorgan Chase Profit Rises as Loan Provisions Fall

[ChasC5]

http://www.nytimes.com/2010/10/14/bu...bank.html?_r=1

Wow ... what a suprise ... if you keep all the money ... your profits go up.

JPMorgan Chase kicked off what is expected to be a mixed quarterly earnings season for big banks on Wednesday with a 23 percent increase in third-quarter income.

After powering ahead for the last year on the strength of its trading operations, JPMorgan topped investor expectations with the help of improvement in its credit card business and a gain from money it had previously set aside to cover possible losses from bad loans.

Net income rose to $4.42 billion, from $3.58 billion a year earlier. Earnings were a $1.01 a share, handily topping analyst forecasts for 88 cents. Earnings were 82 cents a share in the period a year ago.

Revenue fell 15 percent, to $24.3 billion from $28.8 billion, in the period a year ago.

The results were the start of a rush of quarterly reports for the banks at a crucial point for the industry. Citigroup will report its earnings on Monday. Bank of America, Goldman Sachs, Morgan Stanley and Wells Fargo will release their results after that.

The nation’s largest banks have returned to health since the financial collapse of 2008 in part because of ultra-low interest rates put in place by federal policy makers. They are charging ahead with plans to adapt to a tougher new regulatory environment, but the weak economy remains a worry, along with the banks’ ability to continue growing revenue.

Jamie Dimon, JPMorgan’s chairman and chief executive, said he was “pleased to report” that the bank’s losses were easing and that he remained cautiously optimistic. Mortgage delinquencies, Mr. Dimon said, had leveled off and he expected credit card charge-offs to continue to fall. Still, he warned that losses could turn higher if economic conditions worsened.

JPMorgan emerged from the global financial crisis in better shape than many rivals. But like other big banks, it still confronts potential losses stemming from bad home mortgages and the legal fallout from the spiraling foreclosure mess. Morgan’s Chase Retail Services announced earlier this month that as many as 56,000 mortgages had documentation problems, prompting calls for an industry wide investigation and a national moratorium on foreclosures.

But Morgan had offered some good news in its latest results. For the third consecutive quarter, the bank set aside significantly less money to cover current and future losses.

Overall, Morgan set aside about $3.2 billion, a 67 percent drop from the $9.8 billion it allocated for losses a year ago. That sharp reduction was driven by modest improvements in housing and the job market, as well as signs that credit card borrowers were in better shape. Indeed, Morgan benefited by a $1.5 billion, or an after-tax gain of about 22 cents a share, from lowering the money it set aside for credit cards, as record charge-off levels start to slow.

However, the bank did set aside about $1 billion to cover faulty mortgages that it is obligated to repurchase from Fannie Mae and Freddie Mac. It also set aside another $1.3 billion to cover future mortgage-related litigation. Together, the charges reduced after-tax earnings by about 33 cents a share.

But Mr. Dimon stopped short of saying the economy was turning around. Unlike the previous quarter, when Morgan bought back $250 million of its stock, the bank did not announce additional share repurchases.

Nor did Mr. Dimon announce plans to begin restoring regular quarterly dividend payments to shareholders, meaning that investors may have to wait until 2011.

Mr. Dimon had previously said that he would await further improvement in the economy and more clarity about minimum capital requirements to be imposed by regulators before contemplating a restoration of the dividend. Such a move, he indicated, could come in the second half of 2010. While the results were better-than-expected, the bank still faces headwinds. Its investment bank posted a $1.3 billion profit, about 33 percent less than a year ago.

Despite fears that stock trading volumes would be sharply lower, stock underwriting fees were down slightly from the previous quarter and the bank profited from the resurgence in corporate bond deals in the early fall. It was also helped by about a $142 million reduction in the money it set aside to cover current and future losses.

Trading results in fixed-income, currency and commodities trading, which suffered a highly publicized loss in the second quarter, fell about 14 percent, to $3.1 billion.

Chase’s consumer businesses, meanwhile, showed some improvement as losses began to ease. The credit card division posted a $735 million profit, after nearly two years of bleeding red ink.

The retail bank earned about $907 million, in part because the bank set aside less money to cover future mortgage and home equity losses. Mr. Dimon had previously said that home mortgages were on track to lose about $5 billion, compared to the $7 billion that the bank had projected earlier this year. Revenue fell by about 7 percent, however, as the bank took in less fee income on deposit accounts.

Morgan’s commercial bank reported record quarterly revenue, while its asset management business also posted solid results. Profit in its treasury services unit, which recently underwent a leadership change, fell 17 percent from a year earlier.