Story updated to include qoute from CEO Dimon and closing stock prices starting in fourth paragraph.
NEW YORK (
) -- After doing its best to prepare the entire world for the worst quarterly revenue result at its investment bank since the depths of the financial crisis,
(JPM - Get Report)
investment banking unit did better than expected.
The unit earned $6.37 billion in revenue and $1.64 billion in profits during the third quarter. Its trading division drove investment banking results, posting revenue gains that countered estimates of a 30% fall tied to a trading and deal making environment that snowballed worse as the third quarter wore on.
Overall, JPMorgan reported Thursday that third quarter profit was $1.02 to a share on revenue of $24.4 billion, beating estimates of 91 cents a share and revenue of $23.40 according to
The earnings beat; however was a result of a $1.9 billion debt valuation gain -earnings that are not related to the underlying operations of the investment bank. In its press release announcing earnings, JPMorgan said, "the DVA gain reflects an adjustment for the widening of the Firm's credit spreads which could reverse in future periods." According to a
report, JPMorgan's CDS spreads nearly doubled from 83-to-162bps during the quarter.
Its investment bank would have posted the lowest net earnings and revenue result since the worst of the financial crisis without the debt-valuation adjustment. Of the investment bank earnings, JPMorgan CEO Jamie Dimon said in a press release, "The Investment Bank's revenue, excluding the DVA gain, was down substantially; however, we are gratified that the business maintained its #1 ranking in Global Investment Banking Fees." Dimon pessimistically added in a later analyst call that, "its not unreasonable to expect that the fourth quarter is going to look very similar to the third quarter."
Shares fell as much as 6% in early trading after earnings were announced and closed down nearly 5% at $31.60.
Net income from JPMorgan's investment banking operations dropped 20% to $1.64 billion from $2.05 billion in the second quarter of 2011. The result was better than the third quarter results a year ago, when the investment banking unit brought in a profit of $1.29 billion.
Revenue at the investment bank fell 13%, to $6.37 billion from $7.31 billion in the second quarter, beating company forecasts. It was also more than revenue of $5.35 billion this time a year ago. The beat came from an unexpected gain in its fixed income and equity trading businesses.
Expectations were for JPMorgan to earn $1 billion in investment banking fees and roughly $3.77 billion in trading revenue, making overall investment banking revenue forecasts of roughly $4.8 billion the weakest quarterly figure since the 2008 financial crisis when the bank reported an overall loss in the fourth. Without the debt valuation gain, JPMorgan's underlying investment bank revenue of $4.48 billion was slightly lower than pessimistic estimates.