Though many focused on the upside earnings surprise in JPMorgan Chase & Co.'s first-quarter profit report, just as noteworthy, and perhaps more so, were the apparent gains in market share on both sides of its balance sheet.
The New York company said Thursday that it extended $150 billion of credit to 4.5 million customers in the first quarter. It noted a surge in mortgage originations and automotive lending. In the fourth quarter the company made more than $100 billion of loans.
The first-quarter total was "a huge amount of money," James Dimon, JPMorgan Chase's chairman and chief executive, said in a conference call Thursday with reporters. "I think one of the huge misperceptions out there is that banks aren't lending" during the recession.
Gary B. Townsend, the CEO of Hill-Townsend Capital LLC, said the loan growth indicates that the company is stepping in to fill a void vacated by reeling regional banks and alternative loan providers like hedge funds.
"The loan numbers are impressive in the context of an economy that shrank in the first quarter," Townsend said. JPMorgan Chase is using its "heft to elbow out" rival lenders.
On the retail side, it said its consolidation of Washington Mutual Inc. was "on track." The purchase of the failed thrift's banking operations last year helped drive JPMorgan Chase's financial services division to a profit of $474 million in the quarter, compared with a $311 million loss a year earlier.
Average deposits in the retail bank rose 2% from the fourth quarter and 62% from a year earlier, to $345.8 billion. The growth from a year earlier was largely a result of the Wamu acquisition.
William Fitzpatrick, an analyst with Optique Capital Management in Milwaukee, said the 2% growth was impressive, given the heated competition for deposits.
"It's a great opportunity to be scooping up market share," he said. "The growth in deposits is very encouraging. That would suggest that they are taking share from their more challenged competitors."
Dimon said JPMorgan Chase's lending ability would not be hampered if it were granted permission to pay back the $25 billion it took from the Treasury Department last year — something the company would like to do "as soon as possible." Repaying the funds would not affect the company's capital ratios, he said, and it would not need to raise capital to close the deal.
"Obviously, we're waiting for guidance from the government," Dimon said. "Folks, it has become a scarlet letter."
The stigma of federal aid is one reason JPMorgan Chase plans to opt out of the burgeoning Public-Private Investment Program, in which private investors will purchase troubled assets with federal loans. Dimon, whose company bought $34 billion of mortgage-backed and asset-backed securities in the quarter, said it has no intentions of participating as either a buyer or a seller.
"We're certainly not going to borrow from the federal government," he said. "We've learned our lesson on that."
Dimon's yearnings to repay the Treasury capital echoed sentiments this week from Goldman Sachs Group, but analysts said they do not expect either company to get permission to repay Troubled Asset Relief Program funds this year.
"It's logistically challenging. It also sends a message that some banks are better capitalized than others," said Fitzpatrick. "The government doesn't want to go down that road right now."
Still, JPMorgan Chase's strong showing indicates that it is in better shape than most Tarp recipients, even though it set aside another $4.2 billion to cover bad loans in its home mortgage and credit card portfolios in the quarter.
Loss reserves rose 134% from a year earlier, to $27.4 billion.
The company posted net income of $2.1 billion, or 40 cents a share. Though the net income fell 10%, it beat the average forecast of analysts by 8 cents a share, according to Thomson Reuters.
JPMorgan Chase is the third large banking company to deliver surprising first-quarter results, following Goldman's report and an announcement last week that Wells Fargo & Co. expects to report $3 billion of earnings for the first quarter.
In addition to retail financial services, investment banking drove JPMorgan Chase's earnings.
The investment bank — riding high on rebounding fixed-income activity and securities trading — reported $1.6 billion of net income on record revenue of $8.3 billion. The investment bank lost $2.4 billion in the fourth quarter and $87 million a year earlier.
Walter Todd, portfolio manager and co-chief investment officer of Greenwood Capital Associates LLC in South Carolina, said JPMorgan Chase, like Goldman, has benefitted from upheaval in the banking markets.
"I think the survivors in this marketplace — because the competitive landscape has been winnowed down — are going to be very well positioned to take market share in all types of products in investment banking," Todd said.
Townsend said JPMorgan Chase's strong showing bodes well for Bank of America Corp. and other companies with investment banks. "In my opinion, the recovery in banking is under way," he said. "We'll probably have a strong first quarter with a promising outlook for the second quarter."
