Net income rose 34% to $5.71 billion, or $1.40 a share, from $4.26 billion, or $1.02, a year earlier, the New York-based company said today in a statement. Earnings, which included a loss on accounting adjustments, beat the average estimate of $1.20 among 30 analysts surveyed by Bloomberg.
JPMorgan is still recovering from a wrong-way bet on credit derivatives that cost the bank about $6.25 billion through the first nine months of this year, not including what the bank said was a “modest” additional loss in the third quarter. Chief Executive Officer Jamie Dimon, 56, got help restoring investor confidence from historically low interest rates and government programs that fueled demand for home loans.
“The housing market has turned the corner,” Dimon said in the statement. “We were encouraged that credit trends continued to modestly improve, and, as a result, the firm reduced the related loan-loss reserves by $900 million.”
Low interest rates have also been hurting the industry as banks earn less on the money they lend. The bank’s net interest margin, which measures profitability on loans and other interest-bearing assets, dropped to 2.43% from 2.66% a year earlier.
Share Performance
“Investors are using that as an excuse to take profits,” said Paul Miller, a former examiner with the Federal Reserve Bank of Philadelphia and an analyst at FBR Capital Markets Corp.
JPMorgan fell 0.5 % to $41.62 as of 4:15 p.m. in New York. The stock was up 27% this year before today, while the KBW Index of the largest banks rose 30 %.
Wells Fargo & Co., the largest mortgage lender, fell 2.6% after reporting that its net interest margin narrowed as well.
JPMorgan’s revenue climbed 6% to $25.9 billion from $24.4 billion during the third quarter of last year. At the investment-banking unit, it fell 1% to $6.28 billion from $6.37 billion.
Trading revenue, which includes fixed-income and equity- markets, was virtually unchanged at $4.76 billion, the company said. The investment bank’s credit portfolio, which contains the remaining credit derivatives position that generated the loss in the chief investment office in London, generated $90 million in revenue from $578 million in the third quarter of last year.
Fixed Income
Fixed-income trading, excluding accounting adjustments, jumped 33% to $3.73 billion from a year earlier while equity trading was little changed at $1.04 billion.
Industrywide third-quarter equities-trading revenue probably fell 14% from the same period in 2011, according to estimates by Kian Abouhossein, a JPMorgan analyst.
Trading and the investment bank’s credit portfolio declined by $211 million because of a so-called debt-valuation adjustment in the third quarter as the price of the bank’s debt rose.
Retail banking, which includes home loans and checking accounts, earned $1.41 billion, up 21% from $1.16 billion a year earlier.
JPMorgan benefited from gains in mortgage lending as low interest rates and federal incentive programs encouraged homeowners to refinance. Dimon said on a call with analysts that refinancings accounted for about 75% of mortgage volume during the quarter.
Mortgage Fees
Mortgage fees and related revenue totaled $2.38 billion, compared with $1.38 billion a year earlier. Demand for loans also rose as the unemployment rate fell to 7.8 % in September from 9.0 % a year ago.
Fewer consumers fell behind on their credit-card payments in the third quarter compared with the same period in 2011. Loans at least 30 days overdue, a signal of future write-offs, fell to 2.15% from 2.9% in 2011. Write-offs dropped to 3.57% from 4.7% the prior year and 4.35% in the previous quarter.
Industrywide, U.S. credit-card delinquencies were 2.32% in August, down from 3.04% a year earlier, according to Moody’s Investors Service.
Residential mortgage volume in the U.S. rose about 33% to $412 billion in the third quarter from a year earlier, according to estimates by the Mortgage Bankers Association.
Bankruptcy Requirement
The Office of the Comptroller of the Currency forced the industry to write down mortgages to borrowers who have filed for bankruptcy protection, which cost JPMorgan a one-time charge of $825 million in the third quarter, Chief Financial Officer Douglas Braunstein told reporters on a conference call.
JPMorgan wrote down about $2.8 billion in loans, most of which were home-equity loans, to the value of their underlying collateral, Braunstein said.
“We would expect, given the characteristics of the loans we were asked to charge off, that we will receive that value back in the form of principal payments over time,” he said.
The change forced San Francisco-based Wells Fargo to increase net loan charge-offs by $567 million in the third quarter, the bank said.
Bloomberg News
