JPMorgan Net Rises 55% on Fixed Income, Provision Cut (Update2)
By Dawn Kopecki
April 14 (Bloomberg) -- JPMorgan Chase & Co., the second- biggest U.S. bank by assets, beat analysts’ estimates as first- quarter earnings rose 55 percent on record fixed-income trading revenue and a reduction in provisions for credit losses.
Net income climbed to $3.33 billion, or 74 cents a share, from $2.14 billion, or 40 cents, in the same period a year earlier and from $3.28 billion in the fourth quarter, the New York-based bank said today in a statement. The per-share earnings compared with a 64-cent average estimate of 21 analysts surveyed by Bloomberg.
“It’s an embarrassment of riches,” said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York and owns JPMorgan shares. “These are results that you expect from maybe Goldman in a very good environment for trading,” Holland said in a Bloomberg Television interview.
Chief Executive Officer Jamie Dimon has kept the bank profitable throughout the financial crisis, relying on fee income to counter loan losses in mortgage lending and credit cards. The bank, the No. 1 underwriter of stocks and bonds in the U.S. last year, generated three-quarters of its first- quarter profit from the investment bank.
Analysts in the Bloomberg survey had predicted earnings would drop from the fourth quarter on losses from credit cards and home lending. Instead, the bank posted an unexpected profit increase from the end of 2009 on what Dimon called signs of a possible “strong” economic recovery.
‘Broad-Based Improvement’
“There is clear and broad-based improvement in the economic factors in the United States and around the world,” Dimon, 54, told reporters on a conference call. “It appears to be strengthening, not weakening. It is possible that they will strengthen enough to end up with a strong recovery.”
JPMorgan rose $1.28, or 2.8 percent, to $47.15 in composite trading on the New York Stock Exchange at 9:33 a.m. The shares are up 13 percent this year.
Chief Financial Officer Mike Cavanagh said on the call that there is “fundamental real improvement” in consumer mortgage and credit-card delinquencies. That didn’t translate into lower credit costs for the quarter, though he said it “augurs well for future quarters if those trends sustain themselves.”
Home lending and credit-card losses continued to pull down earnings. Retail banking lost $131 million, compared with a $399 million net loss during the fourth quarter and a $474 gain a year earlier.
Credit Losses
The company decreased its provisions against future credit losses in both divisions while setting aside $2.3 billion in reserves for lawsuits stemming from its purchase of Washington Mutual Inc. Credit-card services lost $303 million, compared with a net loss of $306 million in the prior three months and $547 million a year earlier.
First-quarter revenue climbed 11 percent to $27.7 billion, beating the highest estimate among analysts in the Bloomberg survey. Fixed-income revenue was $5.46 billion, compared with $4.89 billion a year earlier.
The firm said improving fixed-income markets contributed to the revenue gains, as did a $462 million reversal of provisions for credit costs in investment banking, which compared with $1.2 billion in expenses a year earlier. JPMorgan cited lower loan balances, driven by repayments and loan sales.
The bank reduced its total provisions for credit losses in all divisions to $7 billion, compared with $8.9 billion in the previous quarter and $10 billion the year before.
Investment Bank
The investment bank contributed $2.47 billion of JPMorgan’s $3.33 billion in net income, or 74 percent. That compares with 57 percent in the fourth quarter and 75 percent in the first quarter of 2009.
“The good news is that the revenue picture was actually quite strong,” said Charles Peabody, an analyst at Portales Partners LLC, in an interview with Tom Keene on Bloomberg Radio. “And in particular, within investment banking, fixed-income trading. That had been an area of concern, so March must have been a blockbuster month.”
The investment bank’s profit came from cutting back on workers and pay to make up for a decline in interest income.
The division’s 24,977 workers were down 4 percent from a year earlier, and overall compensation for the unit dropped 12 percent to $2.93 billion from $3.33 billion in the same period last year, the bank reported on its Web site today. Average pay per employee slid to $117,227 in the quarter from $127,381 a year earlier.
Citigroup Earnings
JPMorgan is the first of the largest U.S. banks to report earnings. Citigroup Inc., the third-biggest lender behind JPMorgan and Bank of America Corp., may report earnings of $340 million when it releases results on April 19, the Bloomberg survey shows. Charlotte, North Carolina-based Bank of America may report a profit of $1.1 billion on April 16.
“The key factor for this quarter for banks will be to say reserve builds are largely behind us and the outlook for lower problem loans and loan losses has improved for the second half of the year,” said Anthony Polini, an analyst at Raymond James & Associates. “It’s the outlook that matters.”
Financial companies have recorded losses and writedowns of $1.77 trillion stemming from the U.S. housing crisis and the worst job market in 26 years, according to data compiled by Bloomberg. The pace of losses has begun to ease in the past two quarters and home prices fell at a slower rate in January, even as the federal government withdraws support from financial markets.
Dividend Speculation
Dimon and Cavanagh didn’t give shareholders immediate hope of restoring the quarterly dividend, which was cut to 5 cents from 38 cents in February 2009.
“We want to see continued sustained improvement in employment, continued sustained improvement in delinquencies” and a better understanding of new bank capital rules before the dividend will increase, Dimon said, reiterating what he told shareholders in his annual letter last month.
Cavanagh said that increasing the payout to shareholders is “going to be down the road a little more.”
With the worst of the crisis behind the company, Dimon said in his letter that the board’s “No. 1 priority” this year is finding his replacement. He said many companies have been destroyed by poor succession planning. JPMorgan is rotating senior staff across divisions to ensure there are several internal candidates that could fill the job, he said.
“He’s very talented. He’s led his company through a minefield without getting blown up; my hat’s off to him,” said Chris Kotowski, an equity analyst at Oppenheimer & Co. in New York. “But there are lots of other good executives around too, both inside JPMorgan and outside” that can run that company.
No comments:
Post a Comment