In his trademark fashion, Jamie Dimon offered a candid assessment of JPMorgan Chase & Co.'s first-quarter results.
The investment bank "had a very good quarter; retail had a very bad quarter," the chairman and chief executive said in a conference call with reporters Wednesday.
First-quarter profits of $5.6 billion handily exceeded analyst expectations as investment banking gains offset heavy mortgage losses and anemic revenue from loans and deposits.
The New York company earned $1.28 per share, up from $1.12 in the fourth quarter and 74 cents a year earlier. Analysts polled by Bloomberg had expected the $2.2 trillion-asset lender to earn $1.15.
Higher investment banking profits and lower credit costs were the two big profit-drivers at the second largest U.S. bank by assets. Fewer problems with delinquent borrowers — particularly credit card holders — enabled it to recapture as profits $2.5 billion from its loss reserves, which declined 8%, to $29.75 billion. That was its biggest reserve release since it began drawing it down a year ago.
But JPMorgan Chase's results also indicate that its revenue problem is not going away. Six of the company's seven principal business units said revenue fell from the prior quarter.
JPMorgan Chase executives on Wednesday emphasized the increased demand for loans and services from large and midsize businesses. That is certainly a promising sign for the U.S. economy, as well as for the country's 7,000 other banks, most of which are struggling to grow revenue because consumers and businesses remain unwilling or unable to take out new loans.
But net interest income — or revenue from interest on loans and securities — declined 2% from the prior quarter and 13% from a year earlier, to $11.9 billion, as run-off in credit card balances and home loans outpaced corporate and mid-market business loan growth. Noninterest income was down 5% both from the prior quarter and year earlier period, to $13.3 billion, as the mortgage and securities gains that sustained earnings last quarter vanished.
Its retail financial services unit, meanwhile, lost $208 million as shrinking loan balances and a slowdown in mortgage activity hurt revenue, while home equity and mortgage losses remained elevated. The unit earned $708 million in the prior quarter and lost $131 million a year earlier.
Chief Financial Officer Doug Braunstein highlighted "encouraging signs" in lending, such as the increase in the portfolio of loans to companies with $10 million to $500 million in annual sales. It expanded 5% from the prior quarter, to $38.2 billion. That book has grown for 12 consecutive quarters.
Also, utilization rates on commercial loans rose about 1% in the quarter. Though they still hovered in the "low 30s," Braunstein said, that was the "first increase" in "several quarters."
That growth reflected "increased demand" and "market share gains," he said. "We had growth in the Northeast; we had growth in the Midwest."
About $1 billion of new loans came from Washington state, California and Florida and other regions that JPMorgan Chase entered through the purchase of Washington Mutual Inc. in 2008, Dimon said.
Though there was a lot of volatility in the global economy last quarter brought on by the Japan tsunami and political turmoil in the Middle East, Dimon said that "it's not clear that's going to derail these companies going about their business — hiring people."
"I think if you look at corporate mid-corporate middle market and even small business, they're generally across the board stronger than they were" last year, Dimon said.
"We're starting to see real small business loan demand," Dimon added. "I expect to see that, too, with [our] competitors. … That's not just us."
Though JPMorgan Chase's nearly 5,300-branch retail bank "demonstrated good underlying performance," it was "more than offset by the extraordinarily high losses we are still bearing on mortgage-related issues" that "will continue for a while," Dimon said in a news release.
The results across JPMorgan Chase's five other business lines:
Investment banking profits rose 58% from the prior quarter, to $2.4 billion, but were down 4% from a year earlier, when it benefited from a boom in the debt and equity markets.
Credit cards earned $1.34 billion, up 3% from the fourth quarter. The unit lost $303 million a year earlier.
Commercial banking earned $546 million, up 3% and 40% from the prior quarter and first quarter of 2010, respectively.
Profits of $316 million in treasury and security services were up 23% quarter-to-quarter and 13% year-over-year.
In asset management, earnings of $466 million were down 8% from the prior quarter, but up 19% from a year earlier.
The corporate and private equity unit earned $722 million; that was up from a $29 million profit in the prior quarter and $217 million profit a year earlier.
