This Day On The Street
Continue to site
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

JPMorgan Chase Beats by a Mile on Improving Credit (Update 2)

JPMorgan Chase's mortgage production revenue declined, though volumes were stronger than predicted. Mortgage originations totaled $52.7 billion during the first quarter, up 3% quarter-over-quarter and 37% from a year earlier.

Mortgage production-related revenue, excluding repurchase losses, was $1.2 billion, a decrease of $401 million, or 25%, from the prior year, as gain-on-sale margins declined from record highs. Mortgage loan repurchase losses totaled $81 million during the first quarter, compared with a benefit of $53 million in the fourth quarter and losses of $302 million in the first quarter of 2012..

Analysts had predicted a 10% to 15% drop in mortgage production revenue. Management said during the conference call that they expect mortgage volumes to remain strong during the year, helped by refinancing.

As banks navigate through a difficult operating environment, the focus remains on expenses. Non-interest expenses at the bank declined 4% over the previous quarter and 16% over the previous year to $15.42 billion. JPMorgan trimmed headcount by 5,271 over the past year.

Legal expenses were down sharply, coming in at $300 million in the first quarter compared to $1.2 billion in the fourth quarter and $2.7 billion a year earlier. Litigation expenses tend to be lumpy.

The bank continued to highlight its "fortress balance sheet."

JPMorgan finished the quarter with an estimated Basel I Tier I Capital of 10.2%, down from 11% in the fourth quarter. However, the company said its estimated Basel III Tier I Common ratio increased to 8.9% from 8.7% the previous quarter. JPMorgan intends to achieve a Basel III Capital ratio target of 9.5% by the end of the year.

JPMorgan completed $2.6 billion in buybacks in the first quarter and said it may buy upto $6 billion through the first quarter of 2014. It also raised its dividend per quarter to 38 cents.

The bank's return on tangible equity also improved to 17% in the first quarter from 15% in the fourth quarter.

In its guidance, JPMorgan Chase said it expects net interest income for all of 2013 to decline 1% from 2012. The bank also said it expects to release $1 billion in loan loss reserves reserves in card, merchant services and auto. Expenses are likely to decline by approximately $1 billion.

Despite a relatively strong showing, JPMorgan faces tough questions from shareholders. The bank is under regulatory scrutiny after its "London Whale" hedge trading losses of at least $6.2 billion in 2012 exposed lapses in risk management and raised questions about controls at the company.

CEO Dimon warned in his annual letter to shareholders that the bank expects more regulatory action. Management would not elaborate on the matter in the conference call, but said it was related to issues that were in the news.

While Dimon has put in place a new management team in response to the debacle and has vowed to make instituting appropriate controls his top priority, some shareholders are still calling for him to step down as Chairman of the board.

Dimon did not address the issue in the media conference call, saying it was a board decision. Press reports have suggested that the CEO might depart the firm if his roles were split.

The trading debacle has also given plenty of ammunition to critics calling for a breakup of big banks. Wells Fargo analyst Matthew Burnell said in a note Thursday that pieces of JPMorgan's individual business are worth $64.83 a share. JPMorgan's stock closed Thursday at $49.31.

Dimon has strongly resisted calls for break-ups. In his annual letter to shareholders he cited the $14 billion in estimated revenues the bank gets from cross-selling, which he cites as an argument for remaining grouped together rather than split up.

JPMorgan is the first of the big banks to report earnings for the first quarter and sets the tone for earnings. Wells Fargo (WFC - Get Report) also reported Friday morning, beating expectations.

JPMorgan and Wells Fargo are among the healthiest banks and set the tone for the rest of the industry. Still, Nomura analyst Glenn Schorr said the bank's earnings did not inspire optimism about the performance of other banks.

"Profitability and organic growth solid, and JPM now sports a 3%+ dividend yield, but we think investors would like to see more from the group, considering the move up in the past four months was mostly built on multiple expansion," he wrote in an early note. "Results plus [management] outlook make us feel okay about JPM, but not necessarily the whole group (don't expect big estimate revisions higher). We see positive [read throughs] for brokers/universals on trading being down 5% q/q vs. the -25%+ in our models and some asset managers, but flattish or uninspiring for the trust banks and regional banks."

-- Written by Shanthi Bharatwaj in New York.

>Contact by Email.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
JPM $57.75 0.00%
XLF $20.95 0.00%
WFC $47.86 0.00%
AAPL $94.02 0.00%
FB $104.07 0.00%


Chart of I:DJI
DOW 16,204.97 -211.61 -1.29%
S&P 500 1,880.05 -35.40 -1.85%
NASDAQ 4,363.1440 -146.4150 -3.25%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs