Consensus was for earnings of 49 cents a share and revenue of $24.81bn — which means the bank has just kicked off the third-quarter US financials earnings season by soundly beating expectations.
Here are the details, with our highlights, from the statement:
NEW YORK–(BUSINESS WIRE)–JPMorgan Chase & Co. (NYSE: JPM) today reported third-quarter 2009 net income of $3.6 billion, compared with net income of $527 million in the third quarter of 2008. Earnings per share were $0.82, compared with $0.09 in the prior year.
Jamie Dimon, Chairman and Chief Executive Officer, commented: “Our net income of $3.6 billion in the quarter reflected the strong earnings power of the company, with broad-based growth across the Investment Bank, Asset Management, Commercial Banking and Retail Banking. However, credit costs remain high and are expected to stay elevated for the foreseeable future in the Consumer Lending and Card Services loan portfolios. Accordingly, we have added $2.0 billion to our consumer credit reserves, bringing the firmwide total to $31.5 billion, or 5.3%1 of total loans. Tier 1 Common Capital, another key element of our fortress balance sheet, was also strengthened through capital generation during the quarter, to $101 billion, or 8.2%.”
Dimon further remarked: “JPMorgan Chase continues to help consumers and communities in this challenging economy. We recently announced the decision to revamp our overdraft policies to make it easier for customers to have more control over the fees they pay. In addition, our Card Services business has developed new innovative products that enhance the way customers manage their spending and borrowing. We are also aiding communities by working with struggling mortgage customers to modify their loans. We have approved more than 262,000 new trial modifications under the U.S. Making Home Affordable Program and our own modification program, nearly 90% of which include a reduction in payments for the homeowner. Since 2007, we have helped families by initiating 782,000 actions to prevent foreclosure, and we are committed to doing our part to support economic recovery going forward.”
Discussing the firm’s outlook, Dimon concluded: “While we are seeing some initial signs of consumer credit stability, we are not yet certain that this trend will continue. Despite this near-term uncertainty about the path of the economy, our strong capital position and underlying earnings power will enable us to continue to invest in our businesses, creating a lasting franchise for many years to come.”
It is still, however, largely a tale of two banks — with strength in the bank’s investment banking division offsetting weakness (and loan loss reserves) in JP Morgan’s consumer and credit card businesses. Here’s the segmental breakdown:
[Investment Banking] Net income was $1.9 billion, an increase of $1.0 billion from the third quarter of 2008. These results included the negative impact of the tightening of the firm’s credit spread, offset by the positive impact of counterparty spread tightening and gains on legacy leveraged lending and mortgage-related positions.
[Retail Financial Services] Net income was $7 million, a decrease of $57 million from the third quarter of 2008, as an increase in the provision for credit losses was largely offset by the positive impact of the Washington Mutual transaction. Compared with the prior quarter, net income decreased by $8 million, reflecting a decrease in mortgage production revenue, an increase in the provision for credit losses, higher noninterest expense and lower loan balances; these effects were largely offset by positive MSR risk management results and wider loan and deposit spreads.
Retail Banking reported net income of $1.0 billion, up by $320 million, or 44%, from the prior year. Compared with the prior quarter, net income increased by $73 million, or 8%, due to a decline in the provision for credit losses, wider deposit spreads and higher deposit-related fees; these were offset largely by higher noninterest expense and lower deposit balances.
Consumer Lending reported a net loss of $1.0 billion, compared with a net loss of $659 million in the prior year and $955 million in the prior quarter. Compared with the prior quarter, results decreased by $81 million, reflecting a decrease in mortgage production revenue, an increase in the provision for credit losses and lower loan balances, largely offset by higher MSR risk management results and wider loan spreads.
Card Services reported a net loss of $700 million, a decline of $992 million from the third quarter of 2008. The decrease was driven by a higher provision for credit losses, partially offset by higher net revenue.
[Commercial banking] Net income was $341 million, an increase of $29 million, or 9%, from the third quarter of 2008. Higher net revenue, reflecting the impact of the Washington Mutual transaction, was predominantly offset by a higher provision for credit losses and higher noninterest expense.
[Treasury and Securities Services] Net income was $302 million, a decrease of $104 million, or 26%, from the third quarter of 2008. The decrease was driven by lower net revenue offset partially by lower noninterest expense. Net income decreased by $77 million, or 20%, from the prior quarter, reflecting a decline of seasonal activity in securities lending and depositary receipts.
[Asset Management] Net income was $430 million, an increase of $79 million, or 23%, from the third quarter of 2008, as higher net revenue and lower noninterest expense were offset partially by a higher provision for credit losses.
[Corporate/Private Equity] Net income was $1.3 billion, compared with a net loss of $1.8 billion in the third quarter of 2008.
[JPM Chase] Net income was $3.6 billion, an increase of $3.1 billion from the third quarter of 2008. The increase in earnings was driven by higher net revenue, partially offset by increases to both the provision for credit losses and noninterest expense.
And a bit more on the investment banking results:
Discussion of Results:
Net income was $1.9 billion, an increase of $1.0 billion from the third quarter of 2008. These results included the negative impact of the tightening of the firm’s credit spread, offset by the positive impact of counterparty spread tightening and gains on legacy leveraged lending and mortgage-related positions.
Net revenue was $7.5 billion, an increase of $3.4 billion, or 85%, from the prior year. Investment banking fees were up 4% to $1.7 billion, consisting of equity underwriting fees of $681 million (up 31%), debt underwriting fees of $593 million (up 19%) and advisory fees of $384 million (down 33%). Fixed Income Markets revenue was $5.0 billion, up by $4.2 billion, reflecting strong results across most products and gains of approximately $400 million on legacy leveraged lending and mortgage-related positions, compared with markdowns of $3.6 billion in the prior year. These results also included losses of $497 million from the tightening of the firm’s credit spread on certain structured liabilities, compared with gains of $343 million in the prior year from the widening of the spread on those liabilities. Equity Markets revenue was $941 million, down by $709 million, or 43%, which included losses of $343 million from the tightening of the firm’s credit spread on certain structured liabilities, compared with gains in the prior year of $429 million from the widening of the spread on those liabilities. The current period’s results also included solid client revenue, particularly in prime services, and strong trading results. Credit Portfolio revenue was a loss of $102 million, reflecting mark-to-market losses on hedges of retained loans, largely offset by a combination of the positive net impact of credit spreads on derivative assets and liabilities, and net interest income on loans.
The provision for credit losses increased to $379 million, compared with $234 million in the prior year. The increase in the provision reflected higher charge-offs of $750 million, partially offset by a reduction of $371 million in the allowance for credit losses. The resulting allowance for loan losses to end-of-period loans retained was 8.44%, compared with 3.62% in the prior year. Nonperforming loans were $4.9 billion, up by $4.5 billion from the prior year and $1.4 billion from the prior quarter.
Noninterest expense was $4.3 billion, up by $458 million, or 12%, from the prior year. The increase was driven by higher performance-based compensation, partially offset by lower headcount-related expense.
Next up — Citigroup and Goldman Sachs on Thursday.
Related link:
Dissecting bank results – FT Alphaville
JPM pitches interest-only mortgages to boost Obama plan – Bloomberg
JPM Q3 earnings release financial supplement – JP Morgan
JPM Q3 investor presentation – JP Morgan