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JPMorgan sets high target for US banks

Text by News Wires

Latest update : 2010-04-14

US banking bellwether JPMorgan has reported a 55% jump in first-quarter earnings to 3.3 billion dollars, sending bank shares up on the New York Stock Exchange.

REUTERS - JPMorgan Chase & Co reported quarterly profit that beat forecasts as investment banking earnings gained and loan losses slowed, and sounded a bullish note on the overall economy.

The strong results at the second-largest U.S. bank sent its shares up as much as 3.3 percent and underscored an industry-leading role that was strengthened by its resilience during the 2008 financial crisis.

The results buoyed investors who had looked to JPMorgan—the first of the major banks to report—to end lagging worries over banks’ health, and reassure Wall Street that the financial crisis was fading.

Banks broadly rallied on the news and the KBW Banks Index jumped 2.6 percent.

“JPMorgan is a bellwether for many of the financials,” said Matt McCormick, a portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati. “Anyone who does not come in with similar results will suffer the consequences in the market.”

The New York-based bank reported a quarterly profit of $3.3 billion, or 74 cents a share, compared with $2.1 billion, or 40 cents a share, a year earlier.

Chief Executive Jamie Dimon, who has typically been cautious about the bank’s outlook and warned at an investor day in February the economy could still be threatened by a “double-dip” scenario, was upbeat on a call with journalists.

“The chance of a double dip is rapidly going away,” he said. “This could be the makings of a good recovery.”

He said the bank was adding staff “everywhere” although he poured cold water on speculation it was close to raising its dividend, saying he wanted to see continued and sustained improvement in employment and loan delinquencies before boosting the payout.

JPMorgan boosted headcount by 7,054 people, or 3 percent, in the quarter.


Dimon, who has been an outspoken critic of the Obama administration’s proposed regulatory reforms, was again vocal in a call with analysts following the earnings release.

In particular, he warned about plans to bring trading of the financial instruments known as derivatives onto exchanges. Many classes of derivatives, which allow investors to hedge their exposure to interest rates, currencies and other variables, are traded in over-the-counter markets.

Moving these derivatives onto exchanges could hit the bank’s revenue by “$700 million to a couple billion dollars,” Dimon said.

He also renewed his criticism of Obama’s proposed bailout fee on big banks, which the White House has said could raise up to $117 billion over the next 10 years.

“Let’s not call it a bank fee,” Dimon said. “Let’s call it what it is, which is a punitive bank tax.”

Lower loss expectations

The investment bank unit had a bumper quarter, reporting quarterly net revenue of $8.3 billion, almost matching last year’s record of $8.4 billion in the first quarter. Dimon and Chief Financial Officer Michael Cavanagh said this business was strong across all regions and asset classes.

The pair were somewhat more cautious about the outlook for the bank’s retail financial services business, which includes the Chase bank, mortgage and other consumer lending. “If things start to peak out and the economy gets better, you’re through the worst part but there’s a ways to go,” Dimon said.

JPMorgan put aside $3.7 billion for future losses in this unit, down $144 million from the year-earlier quarter and down $496 million from the fourth quarter.

The bank also trimmed its loss expectations for its credit-card portfolio and it cut the unit’s reserve for loan losses by $1 billion. The credit-card unit reported a first-quarter loss of $303 million, compared with a loss of $547 million a year ago.

“They have set the bar very high for the rest of the industry,” said Michael Holland, chairman of investment firm Holland & Co. “This is a superb report.”

Revenue rose 5 percent to $28.2 billion, beating analysts’ expectations of $26.5 billion.

The bank raised its litigation reserves, including for mortgage-related matters, by $2.3 billion, which Dimon attributed to the mortgage area being “confusing.”

JPMorgan’s shares were up $1.32 or 2.9 percent at $47.20 on the New York Stock Exchange at midday on Wednesday, off an earlier high at $47.40. The shares have climbed 10 percent since the start of the year.

Date created : 2010-04-14