Fixed income helps JP Morgan move on from Whalegate

A strong third-quarter performance in fixed income trading – which led to a 33% jump in underlying revenues compared to a year ago – has helped JP Morgan move on from what has been a tumultuous period for the US bank.

JP Morgan also said in its third quarter results, which were published today, that its Chief Investment Office had “effectively closed out” positions held from its infamous “London Whale” trade, which came to light in May.

The bank said the CIO had experienced $449m of losses in the third quarter from principal transactions on the portfolio of index credit derivative positions it was left with after transferring a synthetic credit portfolio to JP Morgan's investment bank in July.

This loss was in addition to the $5.8bn of losses that had already been incurred for the year to date, taking the overall figure to $6.25bn. In addition, JP Morgan said the portfolio that was shifted to the investment bank posted a "modest loss" in the third quarter.

Within the results, the fixed income trading business was one of the stand-outs for the bank after enjoying a 33% year-on-year increase in revenues to $3.7bn, after stripping out the impact of debt valuation adjustments, or fluctuations in the valuation of the bank's own debt. Equities trading revenues, on the same basis, remained flat at $1bn.

Overall, JP Morgan’s investment bank generated net profits of $1.6bn for the third quarter, which was just 4% below their year-ago level. Excluding the impact of DVA, net profits climbed to $1.7bn from $1.2bn.

Net revenues at the investment bank totalled $6.3bn, just 1% below the third quarter of 2011. Excluding DVA, revenues rose by $2bn to $6.5bn for the same periods.

Revenues from investment banking, or advisory and underwriting work, climbed by 38% year-on-year and by 15% from the second quarter to hit $1.4bn in the three months to the end of September, chiefly driven by debt underwriting, where revenues were 62% higher than the third quarter last year, hitting $805m.

The third-quarter figures are to be the last quarterly set of results from JP Morgan before the bank starts reporting its figures at the end of the year in line with a new organisation unveiled over summer.

The bank said in July it would combine its investment bank, treasury and securities services, and corporate banking units into a single corporate and investment banking division under the leadership of co-chief executives Mike Cavanagh and Daniel Pinto.

The US bank said that the corporate and investment bank's businesses would be reorganised along two lines. The first, banking, now includes investment banking, corporate banking and treasury services, while the second, known as markets and investor services, comprises fixed income, equities and commodities, as well as prime services and securities clearing.

Pinto has responsibility for markets and investor services, while Cavanagh oversees the banking side of the new-look corporate and investment banking business.

Last month, the two co-chief executives outlined their leadership team for the different component businesses, in an internal memo sent to staff. The team included prominent roles for six London-based bankers.