JPMorgan Crushes Profit Expectations


JPMorgan ’s profit beat expectations in the third quarter, with investment banking operations posting strong gains, the company said Wednesday.

But the company warned that credit costs remained high.

The bank earned 82 cents a share in the third quarter, up from 9 cents a share in the same quarter a year ago. That was much higher than the 52 cents a share analysts surveyed by Thomson predicted.

JPMorgan shares were 3 percent higher in early trading, at $47.08.

Tier 1 common capital at JPMorgan was also strengthened through capital generation during the quarter, up 8.2 percent to $101 billion, the bank said in a statement.

"While we are seeing some initial signs of consumer credit stability, we are not yet certain that this trend will continue," Chairman and CEO Jamie Dimon said in the statement.

"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," he said.

Some analysts expect JPMorgan to be the first bank to raise dividends, possibly as early as this year, but Chief Financial Officer Michael Cavanagh said that "if we are lucky" dividends could rise to 75 cents or $1 a share from next year.

Raising Estimates?

JP Morgan Chase

The results may prompt analysts to raise their estimates for the company's profit, Ed Najarian, director of bank stock research at ISI Group told "Squawk Box."

"It just looks like a lot of strength pretty much across the board, with a lot of the upside coming from the capital markets business, as expected," Najarian said.

"I think a lot of people will be taking estimates (for the company’s earnings) up today for the balance of this year, as well as for 2010 and 2011," Najarian said. "That certainly should power the stock."

But Najarian will not change his estimates for other banks due to report this week. "We'll wait and see their numbers," he said, adding that JPMorgan was "definitely the leader of the pack in terms of credit-based financials."

The bank's net revenue was $7.5 billion, an increase of 85 percent from last year. Investment banking fees rose 4 percent to $1.7 billion, with equity underwriting fees rising 31 percent, debt underwriting fees up 19 percent and advisory fees falling 33 percent.

Markets revenue was $5 billion, up by $4.2 billion from the same period a year ago.

The provision for credit losses increased to $379 million from $234 million in the prior year, reflecting higher charge-offs of $750 million, the bank's statement said.

Loan Loss Reserves in Focus

Net charge-offs on consumer loans were $7 billion, more than double from the same period the previous year.

JPMorgan Conference Call

JPMorgan's nonperforming assets totaled $20.4 billion at September 30, 2009, up from the prior-year level of $9.5 billion.

Some analysts said the results bode well for the rest of financials.

"If people take the view this is what is happening with financials we are talking several hundred points on the FTSE and over 10,000 on the Dow,"  Mike Lenhoff, chief strategist at Brewin Dolphin, told Reuters.

"JPMorgan's stellar figures, beating expectations, could be the catalyst for further gains, albeit one must recognise that in the background we have Goldman's results to assess tomorrow," said John Murphy, analyst at ODL securities.

JPMorgan is "getting close" to the end of adding to loan loss reserves, Cavanagh said. Earlier on "Squawk Box," Najarian said he was looking for confirmation that the reserves build is over, because this indicates that JP Morgan expects stabilization and also that they will no longer need to cover credit losses themselves.

— Reuters contributed to this story