JPMorgan Chase & Co, the second- biggest US bank by assets, beat analysts’ estimates as first-quarter earnings rose 55 per cent 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, the New York-based bank said today in a statement. The per-share earnings compared with the 64-cent average estimate of 21 analysts surveyed by Bloomberg.
“It’s an embarrassment of riches in this quarter,” 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, 54, 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 US last year, generated three-quarters of its first- quarter profit from the investment bank. JPMorgan rose to $47.30 in New York trading at 7:43 am from $45.87 at the close on the New York Stock Exchange yesterday. The shares are up 10 per cent this year.
Fixed income
First-quarter revenue climbed 11 per cent 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. The investment bank contributed $2.47 billion of JPMorgan’s $3.33 billion in net income, or 74 per cent. That compares with 57 per cent in the fourth quarter and 75 per cent 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.”
Citigroup results
JPMorgan is the first of the largest US 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.
“While the economy still faces challenges, there have been clear and broad-based improvements in underlying trends,” Dimon said in the statement. “We believe these improvements will continue and are hopeful they will gather momentum, resulting in a strong recovery.”
The company previously estimated mortgage losses could run as high as $2.5 billion in any quarter this year.
“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.”
Home prices
Financial companies have recorded losses and writedowns of $1.77 trillion stemming from the US housing crisis and the worst job market in 26 years. 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.
Dimon told shareholders in his annual letter last month that the bank, which cut its quarterly dividend to 5 cents from 38 cents in February 2009, would only boost the payout if the US economy shows several months of improvement in the jobless rate and there is a “significant reduction” in charge-offs.