JP Morgan's third quarter net up 34%

JP Morgan Chase's third-quarter earnings rose 34% as the bank saw revenue rise and its provision for credit losses fall. Results topped Wall Street expectations.

JP Morgan's results kick off the reporting season for US banks, delivering investors the first look at a quarter expected to be stronger than last year's lacklustre results, thanks to revenue from mortgage lending and fixed-income capital markets. Obstacles however continue to abound, including low interest rates and increasing competition for loans.

 

The largest US bank by assets has been in the spotlight since early April as its outsized, complex trades on credit default swaps tied to corporate bonds came under intense scrutiny during the "London Whale" debacle. In July, JP Morgan revealed that trading losses on synthetic credit

derivatives had amounted to $5.8bn and could increase by as much as $1.7bn in what it deemed a worst-case scenario. The following month it restated its first-quarter results, which included the loss resulting from the ill-placed investment hedges, and admitted to a "material weakness" in internal controls.

 

On Friday, the bank noted that it recorded $449m in losses in the third quarter in its Chief Investment Office related to the derivatives loss.

Chief executive Jamie Dimon said he believes "the housing market has turned the corner." However, he also noted that charge-offs remains elevated and that the bank expects to see high default-related expense for a while longer.

 

On Friday, JP Morgan reported a profit of $5.71bn, or $1.40 a share, versus $4.26bn, or $1.02 a share, a year ago. The latest period included a net four cent per-share gain tied to reduced mortgage loan reserves, charge-offs, debt extinguishment gains and litigation reserves. The year-ago period included a net five cent benefit related to debit valuation adjustment gains in the investment bank.

Revenue on a managed basis, which excludes the impact of credit-card securitisations and is on a tax-equivalent basis, was up 6.1% to $25.86bn.

 

Analysts polled by Thomson Reuters expected a per-share profit of $1.24 on revenue of $24.53bn.

Non-interest expenses edged down 1% to $15.37bn.

 

Overall, the bank's credit-loss provisions - funds set aside to handle future loan losses - totalled $1.79bn, lower than the $2.41bn a year earlier but higher than $214m in the second quarter.

JP Morgan's investment banking arm turned a profit of $1.57bn, down 3.9% from a year earlier and 18% from the second quarter.

 

The bank's retail services business, which handles consumer and small-business clients, reported a profit of $1.41bn, up 21% from a year earlier but down 38% sequentially.

Mortgage loan originations were $47.3bn, up 29% from the prior year and 8% from the second quarter.

 

Since revealing the trading losses, JP Morgan has made a slew of organisational and management changes. In July, the bank revealed it would consolidate its consumer-banking businesses and combine its capital-markets and its trust-and-payment-processing businesses - shrinking six divisions into three, as asset management will remain its own division.

Then in September, it announced a reorganisation of its corporate and investment banking division, creating two units and shifting the decade-long head of its equities business to run a restructured arm catering to institutional investors.

 

Shares were up 0.9% to $42.45 in recent pre-market trading. Through Thursday's close, the stock has climbed 27% so far this year.