Update includes comments from the conference call and share price changes
NEW YORK (
once again succeeded in beating market expectations on Wednesday, reporting a third-quarter profit of $3.6 billion, or 82 cents per share.
The bottom line, driven largely by strong investment banking results, particularly in trading and fixed income, blew out even the highest analyst forecast of 65 cents per share, according to Thomson Reuters. The average prediction was 52 cents per share. JPMorgan and other big banks, including
Bank of America
, beat analysts' wide range of expectations in the first two quarters as well, due to market improvements and a refinancing boom driven by government programs.
Shares of JPMorgan Chase shot up more than 4% in the early morning, hitting a new 52-week high of $47.47 and bolstering other financial stocks as well. The stock most recently was up 3.4% to $47.21. Going into Wednesday's session, JPMorgan's stock was up 30% since its second-quarter report in mid-July.
The news was not all rosy at the giant financial firm though.
Chairman and CEO Jamie Dimon noted that credit costs "remain high and are expected to stay elevated for the foreseeable future." The firm added $2 billion to reserves for future consumer credit losses - the same provision as it did in the second quarter - mostly related to consumer lending and card services portfolios.
JPMorgan now has $31.5 billion in reserves, representing 5.3% of total loans. Accordingly, charge-offs climbed sharply to $750 million from $433 million during the second quarter, and nonperforming loans grew by $1.4 billion from the prior period to stand at $4.9 billion at Sept. 30.
"While we are seeing some initial signs of consumer credit stability, we are not yet certain that this trend will continue," Dimon added, in a statement sure to be seized upon by bearish investors.
Investors and analysts had been watching to see if JPMorgan Chase would be lowering its reserve build at all - a healthy sign that the economy is recovering.
During the company's conference call with analysts this morning, CFO Mike Cavanagh reiterated that the company could be getting near the end of its reserve building "
subject to the economy stabilizing and these trends continuing."
However, "we don't know and we have to remain cautious about what does happen from here and if things do worsen we may need to do more reserve actions," Cavanagh said.
JPMorgan Chase had made similar comments during its second-quarter call.
Investment banking drove most of JPMorgan's gains, contributing $1.9 billion, or 53%, of the bottom line, while corporate and private equity added another $1.3 billion. Asset management posted $430 million in profit. All three divisions posted both year-over-year and sequential quarterly growth in profits and revenue.
Commercial banking contributed a profit of $341 million, and treasuries and security services earned $302 million, both of which improved sharply from the year-ago period, but declined on a quarterly basis.
Businesses weighed down by troubled consumer loans didn't do quite as well, with retail banking earning just $7 million, down 53% on a sequential basis, and 89% year-over-year. Card services lost more money as fewer customers were able to pay credit card bills, posting a loss of $700 million vs. $672 million last quarter and a profit of $292 million in the year-ago equivalent period.
Still the true benefits of JPMorgan Chase's two big acquisitions last year -- investment firm Bear Stearns and retail banking outlet Washington Mutual -- are really starting to reverberate in the bank's bottom line. Both companies were purchased at fire sale prices last year at the behest of regulators.
Cavanagh added on the conference call that the company could raise its dividend in the early part of next year.
But it still needs proof that "the economy does not have another potential leg down in it," as well as to see a decline in credit costs, net charge-offs and macro factors like "peaking unemployment," he said.
At that point, the company would likely "make a single significant move initially upping the dividend to something in the range of 75 cents to $1 per year from the 20 cent level we are currently at" and then further dividends at the 40% ratio of "normalized" earnings the company is currently at, he said.
"If we're lucky that first significant move could come sometime in the early part of 2010, but that requires the economy to stabilize," he said.
Last month, JPMorgan named Jes Staley as its new head of investment banking, putting him in line to succeed Dimon. Bill Winters, a longtime JPMorgan banker and co-head of its investment banking division, left the firm, while the unit's other co-head Steve Black became its chairman until the end of 2010.
While Dimon is still fairly young -- he is only 53 -- the changes have sparked curiosity among investors as to whether he would be leaving. Dimon, unlike some of his big bank brethren CEOs, is well liked among the investment community.
Dimon was not asked specifically on the call regarding his own succession, but refuted the idea that the changes to the investment bank management team were related to the business having another solid quarter.
"I guess you don't necessarily, when you make management changes, which are going to be for the next five to 10 years because you think you're having a good quarter or a bad quarter or something like that," Dimon said in an answer to one analyst's question. "We're just trying to figure out what the right thing to do for the long-term health of the company. I don't think it relates at all to whether you're having a good quarter, a good year or a bad one."
Written by Laurie Kulikowski and Lauren Tara LaCapra in New York