Bloomberg reports:
July 16 (Bloomberg) -- JPMorgan Chase & Co., the second- largest U.S. bank, said profit rose for the first time since 2007 on record investment-banking fees. Chief Executive Officer Jamie Dimon predicted more losses on consumer loans.
Second-quarter earnings increased to $2.7 billion, or 28 cents a share, from $2 billion a year earlier, the New York- based bank said today in a statement. The average estimate of 14 analysts surveyed by Bloomberg was 5 cents a share, including costs to repay government bailout funds and an assessment by the Federal Deposit Insurance Corp.
Investment-banking revenue from trading and stock and bond underwriting is helping offset rising defaults on consumer loans, such as mortgages and credit cards. Dimon said he doesn’t expect the card business to make a profit this year or in 2010, and the company increased its loss projections for prime and subprime mortgages.
“The credit problems, although they have stabilized, we’re still not out of the woods,” said Gerard Cassidy, a banking analyst at RBC Capital Markets in Portland, Maine, in a Bloomberg Radio interview. “For JPMorgan Chase, the challenge going forward is going to continue to be deterioration of credit.”
JPMorgan fell 13 cents to $36.13 at 4 p.m. in New York Stock Exchange composite trading, paring its gain for the year to 15 percent.
Net Revenue
The firm’s total net revenue was a record $27.7 billion on a managed basis, which compares with $19.7 billion in last year’s second-quarter. The return on common equity fell to 3 percent, which includes a charge for repaying government money. That figure would have been 6 percent excluding the charge to repay the Troubled Asset Relief Program, unchanged from the previous year’s period.
JPMorgan’s retail bank posted income of $15 million as home-equity and prime mortgage defaults continued to rise. Home- equity charge-offs climbed to $1.3 billion, or 4.61 percent. Prime mortgage defaults were $481 million, or 3.07 percent, versus $104 million, or 1.08 percent a year earlier.
Credit cards lost $672 million, compared with income of $250 million in the second-quarter last year. The managed charge-off rate, which generally tracks unemployment, climbed to 10.03 percent, from 7.72 percent in the first quarter and 4.98 percent in the year-earlier period, according to the statement.
JPMorgan said losses in its Chase credit-card portfolio may be 10 percent next quarter and will be “highly dependent” on unemployment after that. Losses for cards issued by Washington Mutual, which the bank acquired in September of 2008, may reach 24 percent by the end of the year, the company said.
Credit Losses
The lender boosted its loan loss reserve to $2 billion in the quarter, adding to the $28 billion set aside to cover credit losses as of March 31. Tier 1 capital, a gauge of the bank’s ability to withstand losses, climbed to 9.7 percent from 9.3 percent in the first quarter.
JPMorgan said prime mortgage losses may be $600 million “over the next several quarters,” and subprime losses may be $500 million. Its guidance for home-equity loan losses remained the same at $1.4 billion.
Dimon, 53, said the firm supported “proper consumer protection” and that pending legislation setting up an agency to monitor consumer lending practices would hurt short-term profits in credit cards.
“There should be less regulatory agencies and not more” to avoid unnecessary bureaucracy, Dimon said on a call with analysts.
Investment Bank
The investment bank generated $1.47 billion of profit, almost quadruple the amount earned in last year’s second- quarter, as fees from underwriting stock and bond deals and fixed-income trading boosted results.
This was the first time since the beginning of the credit crisis in 2007 that JPMorgan didn’t take writedowns on its leveraged loans, Chief Financial Officer Michael Cavanagh said. The bank had “modestly positive” gains in the second quarter, net of hedges.
JPMorgan now holds loans with a market value of $3.3 billion, down from $43 billion in September 2007, including loans acquired from failed investment bank Bear Stearns Cos.
The bank ranks No. 1 in underwriting stocks globally and in managing bonds sold in the U.S., according to data compiled by Bloomberg.
Goldman Sachs Group Inc. said July 14 it made $3.44 billion in the quarter on record revenue from trading and underwriting stock. Revenue in the three months ended June 26 was $13.8 billion, up from $9.43 billion in the first quarter and $9.42 billion in the second quarter a year earlier.
Asset Management
Profit at JPMorgan’s asset-management unit fell 11 percent to $352 million, while treasury and securities services posted income of $379 million, 11 percent less than the previous year. The commercial banking unit had income of $368 million, a 4 percent increase from last year’s quarter.
The bank is the largest to repay government cash under the Troubled Asset Relief Program, freeing it from compensation and other government restrictions. JPMorgan returned $25 billion in government funds last month, and paid more than $795 million to the U.S. in dividends, according to a June 17 statement. The TARP repayment accounted for 27 cents a share, or $1.1 billion, the bank said today.
JPMorgan paid the FDIC a special assessment of $675 million in the quarter, resulting in a cost of 10 cents a share, as the agency asks banks to help replenish its cash reserves. The fund fell to $13 billion in the first quarter, the lowest since September 1993, after 53 lenders failed far this year.
Bank of America Corp., the biggest U.S. bank by assets, and No. 3 Citigroup Inc. are scheduled to release their latest results tomorrow. Wells Fargo & Co. and Morgan Stanley will announce earnings July 22.
To contact the reporter on this story: Elizabeth Hester in New York at ehester@bloomberg.net.
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