This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

JPM Beats but Credit Is Red Flag (Update 3)

During the third quarter, the company released $967 million in reserves. A year earlier, JPMorgan released only $170 million in reserves.

The smaller reserve release coincided with a sharp increase in nonperforming loans. Nonaccrual loans - loans for which the company no longer books interest, for it does not expect to recover principal balances - grew to 1.57% of total loans as of Sept. 30, increasing from 1.38% the previous quarter, although they were down slightly from 1.58% a year earlier.

Wholesale credit quality continued to improve, but within JPMorgan Chase's consumer portfolio, nonaccrual loans made up 3.21% of total loans as of Sept. 30, increasing from 2.69% in June, and 2.52% in September 2011.

The company's total nonperforming assets increased by $1.1 billion, or 10%, during the third quarter, to $12.48 billion, as of Sept. 30. A year earlier, the company had $12.47 billion in nonperforming assets.

Third-quarter net charge-offs -- loan losses less recoveries -- totaled $2.8 billion, or an annualized 1.53% of average retained loans. The net charge-off ratio increased from 1.27% the previous quarter, and 1.44% a year earlier, however, reserve coverage was very much "ahead of the pace" of charge-offs, covering 2.61% of total loans as of Sept. 30.

During JPMorgan's conference call with analysts, CFO Douglas Braunstein explained that regulatory guidance required that loans whose borrowers had gone through Chapter 7 bankruptcy and were in early stages of delinquency, with payments less than 60 days late, "be written down to collateral value," resulting in $825 million in third-quarter charge-offs. Braunstein went on to say that"97% of those loans are current, 85% actually paying principal," and "if these loans perform the way we expect them to, we would expect to recover a significant amount of the charge-offs over time."

The CFO said that the regulatory guidance "impacted our nonaccrual loan balances." Excluding the effect of the regulatory guidance, and also excluding "performing junior liens that are subordinate to nonaccrual senior liens," total nonaccrual loans were $5.1 billion as of Sept. 30, declining slightly from the previous quarter.

2 of 4

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,943.81 +28.74 0.17%
S&P 500 1,967.57 +2.89 0.15%
NASDAQ 4,415.49 +19.2860 0.44%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs