JPMorgan Beats the Street

Earnings of 86 cents a share are 3 cents ahead of forecasts.
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JPMorgan Chase

(JPM) - Get Report

, the nation's third largest bank, reported a 36% gain in first-quarter profits, spurred by its wealth management and credit-card businesses.

In the quarter, the bank earned $3.08 billion, or 86 cents a share, compared to $2.3 billion, or 63 cents a share, in the year-ago period. Net revenue rose 12% to $15.2 billion.

Earnings in the year-ago quarter were weighed down by a hefty after-tax charge of $558 million, or 15 cents a share, stemming from JPMorgan's settlement payout in the WorldCom litigation.

Analysts, as surveyed by Thomson Financial, had predicted the bank would earn 83 cents a share in the quarter on revenue of $15.2 billion.

The current quarter included a $341 million after-tax benefit because of lower-than-expected credit-card bankruptcy losses. But that gain was more than offset by charges stemming from the bank's adoption of new stock-compensation accounting rules and the repositioning of its portfolio of U.S. Treasury investments.

On the revenue front, the big producers in the quarter were the bank's credit-card group, wealth management and traditional investment banking work. Fees from underwriting and corporate advisory work rose 18% to $1.17 billion. Credit-card revenue increased 10% to $1.9 billion. Revenue from wealth management increased 19% to $2.97 billion.

But JPMorgan's quarter also was impacted by the tricky interest rate environment, an issue that has bedeviled many banks the past few quarters.

The bank said mortgage banking fees fell 33% to $241 million, one more sign that rising interest rates have cooled off the once red-hot housing market. Net interest income, meanwhile, fell 3% to $5 billion.

Net interest income is the money a bank generates from its lending and deposit operations. The narrowing of the spread between short- and long-term rates has made it difficult for banks to generate outsized profits from reinvesting customer deposits into higher yielding assets.

But investors will likely look beyond the bank's first-quarter interest rate troubles, given the indications Tuesday that the

Federal Reserve

may soon top hiking interest rates. Stocks, financial stocks in particular, posted strong gains on Tuesday following the release of the Fed minutes, which indicated the Fed may be only inclined to increase rates one more time.

Revenue from principal transaction, which includes proprietary trading, was down 1% from a year ago to $2.6 billion. But on a sequential basis, trading-related revenue rose 83% from the fourth quarter of 2005.

On Wall Street, big gains in trading revenue have fueled outsized profit reports from

Merrill Lynch

(MER)

,

Goldman Sachs

(GS) - Get Report

and

Lehman Brothers

(LEH)

. But JPMorgan's trading desk has had a history of uneven performances. JPMorgan CEO Jamie Dimon has said one of his priorities is stabilizing the quarter-to-quarter performance of the bank's trading desk.

"Our earnings in the first quarter reflected positive momentum across the firm," Dimon said in a press release.

In premarket trading, shares of JPMorgan Chase were up 60 cents, or 1.4%, to $43.20.