JPMorgan Earnings Increase 55% on Outlook for Economy (zt)

JPMorgan Earnings Increase 55% on Outlook for Economy

April 14 (Bloomberg) -- JPMorgan Chase & Co. said a“broad-based” economic recovery boosted first-quarter earnings55 percent, surprising analysts with record fixed-income tradingrevenue and a better-than-expected outlook for consumer credit.

Net income at the second-biggest U.S. bank by assetsclimbed to $3.33 billion, or 74 cents a share, from $2.14billion, or 40 cents, in the same period a year earlier and from$3.28 billion in the fourth quarter, the New York-based companysaid today in a statement. Record fixed-income trading revenueand a reduction in provisions for credit losses helped the bankbeat the average estimate of 64 cents per share projected by 21analysts surveyed by Bloomberg.

“There is clear and broad-based improvement in theeconomic factors in the United States and around the world,”Chief Executive Officer Jamie Dimon, 54, told reporters on aconference call.

Dimon cited signs including stabilizing U.S. home pricesthat signal the economy may be poised for a “strong recovery.”Chief Financial Officer Mike Cavanagh said delinquencies forcredit cards and mortgages in which the borrower is behind byjust one payment also improved in the first quarter, indicatingthat consumers’ finances are gaining strength after the worstrecession in more than 70 years.

JPMorgan, which repaid $25 billion in federal aid lastyear, remained profitable throughout the financial crisis,relying on fee income to counter loan losses in mortgage lendingand credit cards. The bank, the No. 1 underwriter of stocks andbonds in the U.S. last year, generated three-quarters of first-quarter profit from its investment bank.

Unexpected Strength

“Nobody saw those types of numbers coming,” said PaulMiller, a former examiner for the Federal Reserve Bank ofPhiladelphia and analyst at FBR Capital Markets in Arlington,Virginia.

JPMorgan’s earnings bode well for Bank of America Corp. andother banks, which report earnings later this month, Millersaid. “Credit remains a wild card here, but Jamie talked very,very positive about credit and the consumer,” he said.

JPMorgan rose $1.86, or 4.1 percent, to $47.73 in compositetrading on the New York Stock Exchange at 4 p.m., the biggestgain in six months and the highest price since Oct. 2, 2008. Theshares are up 15 percent this year.

“China’s growing, India’s growing, Japan is growing, homeprices have stopped going down, consumer income is up, consumersare spending, service and manufacturing indexes are up,inventories are still low, I could go on and on,” Dimon said.“This could be the makings of a good recovery. We don’t knowfor sure, but if you look at those factors, it’s pretty good.”

‘Real Improvement’

Cavanagh said on the call that there is “fundamental realimprovement” in consumer mortgage and credit-carddelinquencies. That didn’t translate into lower credit costs forthe quarter, though he said it “augurs well for future quartersif those trends sustain themselves.”

Home lending and credit-card losses continued to pull downearnings. Retail banking lost $131 million, compared with a $399million net loss during the fourth quarter and a $474 milliongain a year earlier.

The company decreased provisions against future creditlosses while setting aside $2.3 billion in reserves for lawsuitsstemming from its purchase of Washington Mutual Inc. Credit-cardservices lost $303 million, compared with a net loss of $306million in the prior three months and $547 million a yearearlier.

First-quarter revenue climbed 11 percent to $27.7 billion,beating the highest estimate among analysts in the Bloombergsurvey. Fixed-income revenue was $5.46 billion, compared with$4.89 billion a year earlier.

Fixed Income

The firm said improving fixed-income markets contributed tothe revenue gains, as did a $462 million reversal of provisionsfor credit costs in investment banking, which compared with $1.2billion in expenses a year earlier. JPMorgan cited lower loanbalances, driven by repayments and loan sales.

The bank reduced total provisions for credit losses in alldivisions to $7 billion, compared with $8.9 billion in theprevious quarter and $10 billion the year before.

The investment bank contributed $2.47 billion of JPMorgan’s$3.33 billion in net income, or 74 percent. That compares with57 percent in the fourth quarter and 75 percent in the firstquarter of 2009.

“The good news is that the revenue picture was actuallyquite strong,” said Charles Peabody, an analyst at PortalesPartners LLC, in an interview with Tom Keene on Bloomberg Radio.“And in particular, within investment banking, fixed-incometrading. That had been an area of concern, so March must havebeen a blockbuster month.”

Citigroup Earnings

JPMorgan is the first of the largest U.S. banks to reportearnings. Citigroup Inc., the third-biggest lender behindJPMorgan and Bank of America, may report earnings of $340million when it releases results on April 19, the Bloombergsurvey shows. Charlotte, North Carolina-based Bank of Americamay report a profit of $1.1 billion on April 16.

Dimon and Cavanagh didn’t give shareholders immediate hopeof restoring the quarterly dividend, which was cut to 5 centsfrom 38 cents in February 2009.

“We want to see continued sustained improvement inemployment, continued sustained improvement in delinquencies”and a better understanding of new bank capital rules before thedividend will increase, Dimon said, reiterating what he toldshareholders in his annual letter last month.

Cavanagh said that increasing the payout to shareholders is“going to be down the road a little more.”

To contact the reporter on this story:Dawn Kopecki in New York at [e-mail].

Last Updated: April 14, 2010 16:09 EDT