JPMorgan Chase Earns $1.28 Per Share

JPMorgan Chase ($JPM) just reported Q1 earnings of $1.28 per share. Wall Street was expecting $1.16 per share. I said I was expecting $1.24 per share.

I have to explain something about bank earnings. When a bank calculates its profits, it has to estimate how many of its loans will turn out to be bad. That’s not so easy. If they over-estimate, then they need more loan loss reserves and that will decrease their current profit.

What we’ve been seeing from JPM is that they’ve been decreasing their loan loss reserves thanks to improvements in their assets. This is often criticized as somehow manipulating their bottom line. It’s not. This is how banking works. Unless you’re able to predict with perfect accuracy, you’re going to have to add or delete loan loss reserves.

J.P. Morgan Chase & Co.’s first-quarter profit jumped 67% as it set aside less for potential loan losses and revenue fell less than expected.

The first big bank reporting results, J.P. Morgan has seen earnings surge in recent quarters, largely because improving asset quality has led it to set aside less to cover loan losses. It has said loans are growing, and in the fourth quarter the bank saw revenue climb from year-earlier levels at operations tied to both Wall Street and Main Street.

In the latest period, the investment-banking arm’s profit slid 4.1% as net revenue dipped 1%. The retail financial-services business’ loss widened as revenue dropped 19%.

The company’s bottom line again benefited from it setting aside sharply less to cover potential loan losses. Many banks have seen lower reserves boost earnings amid signs of credit improvement. Credit-loss provisions were $1.17 billion, down from $7.01 billion a year earlier and $3.04 billion in the prior quarter.

J.P. Morgan reported a profit of $5.56 billion, or $1.28 a share, up from $3.33 billion, or 74 cents a share, a year earlier. The latest period included a net three cents in gains as a benefit from reduced credit-card loan loss reserves more than offset the impact of mortgage servicing rights asset adjustment and estimated expense of foreclosure-related matters.

Revenue on a managed basis, which excludes the impact of credit-card securitizations and is on a tax-equivalent basis, slid 8.5% to $25.79 billion.

Analysts polled by Thomson Reuters had most recently predicted earnings of $1.16 on $25.27 billion in revenue.

“The firm’s results reflected a strong quarter across the investment bank and solid performance from card services, commercial banking, treasury & securities services, and asset management,” Chief Executive James Dimon said.

Posted by on April 13th, 2011 at 7:33 am


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