In JPMorgan We Trust – Analyst Blog

JPMorgan Chase & Company’s (JPM) third quarter earnings came in at $1.01 per share, substantially ahead of the Zacks Consensus Estimate of 91 cents. Results also soared from the earnings of 82 cents in the prior-year quarter.

 

The better-than-expected numbers were primarily supported by a slowdown in provision for credit losses, which more than offset a pressure on trading revenues, investment banking revenues and non-interest income. Strong mortgage loan production by Retail Financial Services, higher Card Services sales volume and strong net inflows in Asset Management were also impressive during the quarter.

 

 

Net income available to common shareholders was $4.4 billion, up 23% from $3.6 billion in the prior-year quarter. A significantly lower provision for credit losses primarily drove the results. However, lower revenues and higher non-interest expenses were the offsetting factors.

 

Managed net revenues for the quarter came in at $24.3 billion, down 15% from $28.8 billion in the year-ago quarter. However, this compares favorably with the Zacks Consensus Estimate of $24.2 billion. 

 

Managed non-interest revenues were $11.7 billion, down 16% from $14.0 billion in the prior-year quarter. The decrease was driven by lower principal transaction revenues as a result of weak trading performance. Net interest income was $12.6 billion, down 15% from $14.8 billion in the year-ago quarter. The decline in net interest income was due primarily to JPMorgan’s lower loan balances.

 

Non-interest expenses for the quarter were $14.4 billion, up 7% from $13.5 billion in the prior-year quarter. The increase was driven by higher litigation expense.

 

Managed provision for credit losses decreased 67% year over year to $3.2 billion. Total consumer provision for credit losses was $3.2 billion, down 64% from $9.0 billion in the year-ago quarter. This reflects a reduction in the allowance for credit losses as a result of improved delinquency trends and reduced net charge-offs.

 

 

JPMorgan’s credit quality showed a decent improvement during the quarter. As of September 30, 2010, nonperforming assets were $17.7 billion, down from $18.2 billion in the prior quarter and $20.4 billion in the prior-year quarter. Net charge-offs decreased to $4.9 billion from $5.7 billion in the prior quarter and $8.1 billion in the prior-year quarter. As a result, the managed charge-off rate improved to 2.84% from 3.28% in the prior-quarter and 4.30% in the year-ago quarter.

 

 

JPMorgan maintained a strong capital position with an estimated Tier 1 common capital ratio of 9.5% as of September 30, 2010, versus 9.6% on June 30, 2010 and 8.2% on September 30, 2009.

 

Book value per common share was $42.29 as on September 30, 2010, compared with $40.99 as on June 30, 2010 and $39.12 as on September 30, 2009.

 

JPMorgan is one of the major lenders to have recently decided to rein in their foreclosure activities as rampant paperwork irregularities led to a wrong evaluation of the authenticity of information provided in the mortgage documents. The other lenders that have taken similar decisions are General Motors Acceptance Corporation (“GMAC”) Mortgage LCC, a wholly-owned subsidiary of Ally Financial, Bank of America Corp. (BAC) and PNC Financial Services Group Inc. (PNC). As a precautionary measure, lawmakers have asked several other lenders to halt their processes as well.

 

Though concerns relating to the near-term impact of the financial reform law and the suspension of foreclosures due to paperwork flaws overcast its share price in the recent days, the stock was up about 0.2% following the announcement of third quarter results.

 

Though most of the major banks had to absorb extraordinary shocks from the recession, JPMorgan maintained consistent profitability throughout the downturn in the economy. Despite the impact on earnings power from the recent financial reform law and continuing pressure on trading revenues, JPMorgan is expected to deliver, based on its prudent business model and strong fundamentals.

 

JPMorgan shares are maintaining a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation. We have a long-term “Neutral” recommendation on the stock.

The other major banks that are scheduled to report next week are Citigroup (C) on October 18, Bank of America and Goldman Sachs (GS), both on October 19, and Morgan Stanley (MS) and Wells Fargo (WFC), both on October 20.