-
JPMorgan Chase & Co., the biggest U.S. bank by assets, posted a third-quarter profit that beat analysts' estimates on gains from mortgages and trading.
October 12 -
The New York attorney general sued JPMorgan Chase (JPM) on Monday, charging that the Bear Stearns brokerage it bought committed fraud in the sale of hundreds of billions of dollars in mortgage-backed securities on the eve of the housing crisis.
October 1 -
The bank's bottom line was strong and it has closed out the bulk of losing positions in its London investment office. But two months after disclosure of major risk management failures, analysts remained wary.
July 13
Not so fast.
Yes, JPMorgan Chase (JPM) reported a strong third quarter
Regulators and prosecutors from multiple jurisdictions are putting heavy pressure on JPMorgan, new chargeoffs and legal costs showed. It also faces the same tight margins and tough loan environment plaguing other banks.
"It's never clear and easy in this tough economic environment" to decode the results of JPMorgan Chase, Bank of America and the other large banks, says Jeffery Harte, a principal at Sandler O'Neill & Partners.
One bit of noise came from JPMorgan's home equity loans. The Office of the Comptroller of the Currency ordered it to take an additional $825 million of chargeoffs on home equity loans.The home equity loans were written down to their collateral value, even though in many cases the borrowers are current.
Some have even been current for years, Chief Financial Officer Doug Braunstein said during a Friday conference call to discuss earnings. Of those borrowers, "97% are current and 85% are making principal payments," Braunstein said.
In response to the backlog of lawsuits that have been filed against JPMorgan, the company set aside $684 million of pretax expense for its litigation reserves. The latest: The New York state attorney general charged JPMorgan's Bear Stearns unit with
"We try to reserve what we can reserve for," Chairman and Chief Executive Jamie Dimon said during a Friday conference call. He declined to specifically comment on the litigation.
Even JPMorgan's rosy investment banking numbers have a double-edged sword, according to Dimon. While the Federal Reserve's plan to buy an unlimited amount of mortgage securities until jobs rebound helped contribute to higher trading volumes as the market responded, the promise to keep rates low through at least mid-2015 hurt Chase's margins, Dimon said.
"I wouldn't give QE3 a lot of credit," Dimon said. "Clearly it helped the markets a little bit … [but] lower rates hurt the bottom line."
Indeed, JPMorgan's net interest margin fell to 2.43% in the quarter, from 2.66% a year earlier. That puts a squeeze on profits, as do revenue trends. Though JPMorgan's quarterly revenue rose nearly 6%, fee-based businesses like investment banking and mortgages were primary drivers. Loan demand was modest; JPMorgan reported $721.9 billion of loans, up 4% from a year earlier and down nearly 1% from the previous quarter.
Executives sought to be upbeat. JPMorgan can grow lending on "jumbo [mortgages] …and we think they are very good credits going forward and you can see we are growing the commercial bank," Braunstein said. "We are growing auto; [credit] card we hope to grow. … We want to push the loan growth a little bit."
Tight margins require constant adjustments in decision-making for lending and other parts of the business, Dimon said. "There have been a lot of changes in the business," Dimon said. "We've got to adjust to those changes."
Meanwhile, JPMorgan is making progress in putting its "London Whale" problems behind it, Dimon said. After booking a total loss of $5.8 billion from the fiasco, the company in the second quarter
As for the closely guarded palace secret on the fate of Braunstein (who was
JPMorgan originated $47 billion of mortgages in the quarter, up 29% from a year earlier. Investment banking was strong as fees rose to $1.4 billion, on higher fees for debt and equity underwriting and advisory services.
Those two areas helped push net income to a record $5.7 billion, or $1.40 a share, a 34% increase from a year earlier. Analysts had expected $1.20 per share, according to Bloomberg.