July 17 (Bloomberg) -- JPMorgan Chase & Co., the largest U.S. bank by market value, reported second-quarter earnings that exceeded analysts' estimates, helped by higher investment banking fees and revenue from the consumer business.
JPMorgan rose 14 percent, sparking a rally in financial stocks, as the company followed Wells Fargo & Co. in posting a smaller drop in profits than investors were expecting. Second- quarter net income fell 53 percent to $2 billion, or 54 cents a share. Analysts were predicting 44 cents.
Chief Executive Officer Jamie Dimon said in a statement that while a weakening economy means financial markets will remain ``under stress,'' the New York-based company's capital position is strong. JPMorgan has posted more than $12 billion of writedowns, losses and credit provisions on mortgage-tainted assets through the second quarter, a fraction of the $43 billion at Citigroup Inc., which reports earnings tomorrow.
``JPMorgan is like a raging bull prize fighter punching their way through the credit crisis,'' David Hendler, an analyst at CreditSights Inc. in New York, said in a Bloomberg Television interview. The bank ``has a fortress-like balance sheet and that really helps them absorb these punches,'' he said.
Shares of the company rose $4.86 to $40.80 in composite trading on the New York Stock Exchange at 4:20 p.m.
Bear Stearns
Second-quarter earnings were cut by $540 million of costs from the takeover of Bears Stearns Cos., which JPMorgan agreed to buy in March as the fifth-largest U.S. securities firm faced bankruptcy. The bank won't record any gain on the purchase, which it previously thought would add $1 billion. JPMorgan said it will keep 7,000 of Bear Stearns's 14,000 employees.
JPMorgan increased credit reserves by $1.3 billion to cover bad loans in the quarter, and wrote down the value of leveraged loans and mortgage-related assets by $1.1 billion.
Revenue fell 3 percent to $18.4 billion in the quarter, beating the average estimate of $16.6 billion among analysts surveyed by Bloomberg. Return on equity, a gauge of how effectively the company reinvests earnings, was 6 percent, down from 14 percent a year earlier.
The investment banking unit had a second-quarter profit of $394 million, versus earnings of $1.2 billion a year earlier. The division reported its second-highest quarter for fees, pulling in $1.7 billion. Revenue for the business fell 6 percent partly on weaker equity trading.
Return on equity for the investment bank was 7 percent in the second quarter. That compares with 12.3 percent for New York- based Morgan Stanley and 20.4 percent for Goldman Sachs Group Inc., also based in New York.
Consumer Banking
Consumer banking earned $606 million, a 23 percent drop from a year earlier as JPMorgan set aside more money to cover bad loans. Revenue in the retail bank was $5 billion, up 15 percent.
Chief Financial Officer Michael Cavanagh said on a conference call with reporters that mortgages had ``deteriorated'' with higher late payments and losses.
The problems extended to the bank's so-called prime mortgages, given to customers with the best credit quality, Dimon said on a call with analysts. Prime mortgage losses could climb to $300 million a quarter by 2009.
JPMorgan's decision in 2007 to expand in mortgages was ``wrong,'' Dimon said. ``Prime looks terrible. We're sorry.''
Home-equity losses could reach $700 million by the fourth quarter, less than the previous forecast of $900 million, Cavanagh said.
``It's too early to declare victory on that,'' he said. ``The trend of deterioration may be slowing a bit here.''
Card Business
The credit-card division's profit fell to $250 million, or 67 percent below last year's results. Net charge-offs rose to 5 percent in the quarter.
JPMorgan fell 18 percent during the past 12 months, compared with the 66 percent drop of Citigroup and the 47 percent decline of Bank of America Corp.
``It was clearly a very good report,'' Peter Sorrentino, who helps oversee $16.7 billion at Cincinnati-based Huntington Asset Management, including 3.6 million JPMorgan shares, said in a Bloomberg Radio interview. ``The telling thing for me was the number of business categories where they had very positive revenue comparisons with the same quarter last year.''
Swap Prices
Credit-default swaps on JPMorgan fell 9 basis points to 116 in New York, according to CMA Datavision.
Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline, the opposite.
``We remain somewhat cautious about calms before storms, as consumer and commercial losses will likely increase into early 2009, if not longer,'' David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, wrote in a research note today. He rates the stock ``in-line.''
Dimon also repeated that he would consider buying another bank. He said he has no plans to increase the dividend while credit quality continues to decline.
To contact the reporter on this story: Elizabeth Hester in New York at ehester@bloomberg.net.
Last Updated: July 17, 2008 16:24 EDT
No comments:
Post a Comment