NEW YORK — JPMorgan Chase & Co.'s third-quarter earnings soared as strong investment-banking results outweighed another sizable provision for loan losses.
The $2 billion the bank set aside to cover current and future losses from consumer loans reflects the bank's tradition of protecting its balance sheet even as many bankers see a slowdown in the rate delinquencies are increasing. Chairman and Chief Executive Jamie Dimon said the cost of covering delinquencies will remain elevated "for the foreseeable future" in the company's consumer and credit-card operations.
So despite the strong profit, the quarter doesn't reflect a turnaround yet, but rather stabilization.
It is the first time since JPMorgan Chase bought the collapsing Washington Mutual Inc. in September last year that assets and deposits did not shrink. Loan balances continued to shrink as the recession took its toll on loan demand and JPMorgan Chase continued to rid itself of unprofitable loans. Demand for lines of credit by business borrowers is at record lows, Chief Financial Officer Michael Cavanagh told reporters during a conference call.
But lending became more profitable as high-priced deposits from Wamu continued to run off and the bank's funding costs declined.
Dimon also said the quarter's strong results reflect "broad-based growth" in several lines of businesses. Revenue in all but one of JPMorgan Chase's six lines of businesses improved from the second quarter, though profit was mixed.
JPMorgan Chase, which has $2 trillion of assets, posted a profit of $3.6 billion, or 82 cents a share, up from $527 million, or 9 cents a share, a year earlier. Revenue increased 81% to $26.62 billion. Analysts predicted a profit of 52 cents a share on $24.96 billion in revenue, according to Thomson Reuters.
The bank booked $400 million in gains from leveraged loans and mortgage-related securities that were at the center of the financial meltdown but have improved in value in recent months. Cavanagh told reporters that JPMorgan Chase sold leveraged loans stuck on its books.
Fox-Pitt, Kelton analyst David Trone wrote in a research report, "core revenue flat versus a strong 2Q09... at $27.1 billion," as asset-management and retail-banking-revenue increases offset declining core revenue in investment banking and treasury services.
So far this year, JPMorgan Chase generated $10 billion in income from investment banking, up from $1.5 billion a year earlier. That increase means bankers will be paid more — a political hot potato.
Cavanagh would not say how much more. "We'll await final guidance from regulators" on compensation, but "ultimately performance will determine compensation" at the end of the year, Cavanagh told reporters.
Loan losses, meanwhile, pushed the credit-card division to a $700 million loss, compared with $292 million in earnings a year earlier. Revenue in cards rose 33% from a year earlier and 6% from the second quarter despite falling loan balances.
Dimon told investors during the investor call, "We know we will lose a lot of money next year on card, and it could be north of $1 billion the first and second quarter."
During the call with reporters, Cavanagh said JPMorgan Chase continues to see a stabilization in delinquencies among mortgage and credit-card borrowers who are less than 60 days late on their payments, though he said that even those "early-stage delinquencies" remain at an "elevated level." During the call with analysts, he added: "We are not ready to declare that's a sustained trend."
Shares recently rose 3.6%, or $1.62, to $47.28.