JPMorgan profit beats forecasts
Written on July 18, 2009
The banking industry has another winner.
JPMorgan Chase & Co. reported a 36 percent jump in second-quarter profit Thursday, easily surpassing analysts’ forecasts as huge gains in its investment banking business outweighed higher losses from bad loans.
JPMorgan earned $2.72 billion for the period, up from $2 billion a year ago. Investment banking profit more than tripled to $1.5 billion on higher underwriting fees and gains in its bonds business, though some analysts said that was an unusual bump and unlikely to be sustained.
JPMorgan is seeing its investment banking business benefit from a smaller playing field. JPMorgan bought Bear Stearns Cos. at a fire sale price last year when the firm was on the brink of collapse, and Lehman Brothers later declared bankruptcy.
At the same time, JPMorgan also reported higher losses in consumer lending and credit cards. The bank said it set aside $9.7 billion for credit losses in the quarter, up from $4.29 billion a year earlier. It also set aside another $2 billion to cover future losses, bringing its total loss reserves to more than $30 billion.
JPMorgan’s credit card services division posted a $672 million loss in the quarter, compared with a year-earlier profit of $250 million, as more cardholders default. Revenue also fell with the introduction of new rules designed to protect consumers faxless payday loan.
Despite the gains in investment banking, some analysts were pessimistic about the outlook for the company’s core consumer banking business. Richard Bove of Rochdale Research said loans and deposits both fell, as did profit margins, making it a "very bad quarter," Bove wrote in a note to clients. "Capital gains are the reason for the strong revenue and earnings performance, and these are not sustainable," Bove said.
Retail financial services posted a $15 million profit after setting aside more money as mortgage losses balloon, compared with a profit of $503 million in the period a year earlier.
The profits came despite a $1.1 billion charge, or 27 cents a share, as JPMorgan repaid $25 billion in loans it received from the government as part of the Troubled Asset Relief Program. The bank was also hit by a 10-cents-a-share FDIC special assessment penalty.
Earnings per share fell to 28 cents from 53 cents as the company had more stock outstanding than a year ago.
Analysts had forecast earnings of 4 cents per share on revenue of $25.89 billion.