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JPMorgan holds firm

Latest update : 2008-07-17

Wall Street bank JPMorgan Chase said quarterly profits dropped by half from a year earlier due to the housing crisis and credit squeeze, but remained well ahead of forecasts. Shares in the bank rallied 9.5 percent after the announcement.

JPMorgan Chase said Thursday its profit took a hit in the second quarter from real estate and credit problems along with its takeover of Bear Stearns, but managed to top most estimates.

The US banking giant said reported a 53 percent drop in net profit from a year ago to 2.0 billion dollars.

That amounted to 54 cents per share, comfortably above the Wall Street estimate of 44 cents per share and positive news for the banking sector ravaged by a housing crisis and credit squeeze.

Overall revenues for the April-June period fell 3.0 percent to 18.39 billion dollars.

The generally positive earnings come at a critical time for the financial sector, which has been roiled by steep losses from the US housing slump and forced to tighten credit, impacting economic growth.

The difficult conditions have forced regulators to seize one California bank and prompted worries about a wave of failures and worries about the health of huge mortgage finance giants Fannie Mae and Freddie Mac.

Shares in JPMorgan Chase rallied 9.5 percent to 39.35 dollars, leading the banking sector higher for a second day, following a similarly positive earnings report from Wells Fargo.

"Wells Fargo's report yesterday and JPMorgan Chase's report this morning are good examples of banks delivering essentially lousy earnings but substantially beating estimates thereby sending a message that the situation in the financial sector isn’t quite as bad as Wall Street previously feared," noted Fred Dickson, analyst at DA Davidson & Co.

"Wells Fargo's positive earnings surprise triggered a monster short-covering stampeded not only in Wells Fargo stock, but in many other financial stocks as the shorts feared some of their most profitable short positions might suddenly reverse when they report earnings that could top estimates."

JPMorgan Chase said it took a writedown of 540 million dollars for its acquisition of Bear Stearns, the Wall Street investment bank that fell into a death spiral from risky real estate bets before a takeover arranged by the Federal Reserve and US officials.

One of the biggest US banks, JP Morgan Chase also recorded markdowns of 1.1 billion dollars from its investment bank "related to leveraged lending and mortgage-related positions," a company statement said.

"Our earnings were down significantly due to the unfavorable credit environment and market conditions," said Jamie Dimon, chairman and chief executive officer.

"However, the firm overall continued to maintain solid underlying business momentum ...We also completed the highly complex Bear Stearns acquisition as planned. Through the truly remarkable partnership and efforts of our people in extremely difficult times, we made great progress towards full integration, while also significantly reducing our combined risk positions."

Dimon said he expects "the economic environment to continue to be weak -- and to likely get weaker -- and for the capital markets to remain under stress."

He added: "We remain conscious that since substantial risks still remain on our balance sheet, these factors will likely affect our business for the remainder of the year or longer."

Date created : 2008-07-17