JPMorgan Chase said Wednesday that its profit surged to $3.6 billion in the third-quarter from strong trading results and a flurry of new deals, strengthening its position as one of the dominant banks to emerge from the financial crisis.þþProfit in JPMorgan’s investment banking business more than doubled from a year ago as it pulled in higher fees and increased its profits from fixed-income markets. But losses on credit cards and mortgages weighed down the bank as consumers continued to fall behind on their loans. þþThe bank’s results seemed to light a fire under Wall Street, where futures surged ahead of the opening bell. The Dow was poised to open more than 120 points higher. The results reflected the broader rebound in once-stymied financial markets, where companies are again issuing stock, raising money from bond markets and signing merger deals.þþAfter being forced to take huge write-downs on the value of its investment-banking assets a year ago, the bank said the value of some of those assets increased in the third quarter. JPMorgan also benefited from revenue gains from the branches scooped up in the takeover last fall of Washington Mutual. þþAlthough the recession weighed heavily on its businesses, JPMorgan appears to be taking advantage of the financial crisis to leapfrog over rivals in the investment banking rankings and expand its consumer lending franchise. It added another $2 billion to its consumer credit reserves for future losses and still dwarfed analysts’ expectations of earnings of 51 cents a share. JPMorgan said net income rose to 82 cents a share from 9 cents a share in the third quarter of 2008. Revenues grew to $28.8 billion compared with $16.1 billion from the quarter a year ago. þþ“The revenue growth was very impressive,” said Anthony Polini, an analyst at Raymond James & Associates. “They’re benefiting from a turn in the economy and they’re asserting their dominance.”þþThe bank’s chairman and chief executive, James Dimon, said the earnings reflected “broad-based” growth in the company’s investment-banking business, as well as its asset management, commercial banking and retail banking businesses. þþHe said the bank was performing well but still gave a cautious outlook. þþ“While we are seeing some initial signs of consumer credit stability, we are not yet certain that this trend will continue,” he said in a statement. “Despite the near-term uncertainty about the path of the economy, our strong capital position and underlying earnings power will enable us to continue to invest in our businesses, creating a lasting franchise for many years to come.”þþJPMorgan became the first of the nation’s biggest banks to report its third-quarter earnings. Bank of America, Citigroup and Goldman Sachs also release results later this week. þþWith the housing market and economy still weak, analysts expect to see loan losses continue to rise even if they increase at a slower pace than in previous quarters. Lending, meanwhile, could be down as both consumers and businesses hunker down during a recession. But much of investors’ focus will be on the organizational and political challenges facing the banks as they plunge into an era of tougher regulation. þþFrom Mr. Dimon’s increasingly influential perch, he must contend with several looming issues. Inside the investment bank, his decision last month to replace to co-heads with a single leader, James E. Staley, stirred up new anxieties within the ranks just as the business posted its record results. Its credit card division will not be profitable until 2011, and its consumer franchise has seen a fall-off. þþMr. Dimon also faces obstacles in Washington, too. He must balance paying JPMorgan investment bankers bonuses on blow-out profits with the public backlash over Wall Street pay. New regulations on credit cards threaten to lower the profitability of that business, as could other legislative efforts to rein bank fees. JPMorgan is also a major player in the derivatives business, which is likely to face more stringent regulation. þþAnd for all of Mr. Dimon’s bluster, JPMorgan still has not fully exited from the Troubled Asset Relief Program, or TARP. Despite repaying its $25 billion taxpayer investment in early June, the bank is awaiting the sale of the government’s warrants. At about $1.7 billion, their value has increased by about $460 million since rivals like Goldman Sachs cut deals to buy them back, according to Linus Wilson of the University of Louisiana at Lafayette. þþEven so, JPMorgan is emerging from the current crisis with renewed confidence. Its investment bank posted strong trading revenue, though short of the record levels earlier this year when the markets were in constant flux and prices sky-rocketed. Meanwhile, the bank continued pick up business for corporations raising issuing bonds and selling stock to raise capital. þþChase’s consumer businesses, however, are still bleeding from the rush of bad loans. Together, its credit card and retail banking business added more than $2 billion to cover future losses, bringing its total reserves to $31.5 billion. And that is from a bank that modified over 262,000 loans in the second quarter, representing a big chunk of the industry’s efforts. þþChase retail services posted a narrow $7 million profit , even though issued fewer new mortgages this quarter. þþChase’s commercial bank, meanwhile, booked a $341 million profit even as executives set aside more money for losses on souring commercial real estate loans. Still, that business represents a smaller share of the bank’s overall balance sheet compared to many regional and community lenders. þþ
Source: NY Times
