J.P. Morgan Chase & Co. today reported a modest rise in its third-quarter net income, despite the market turmoil.
The firm said that third quarter profits were US$3.4 billion, up from US$3.3 billion in the third quarter of 2006. Although, its investment bank’s net income was just US$296 million, down by US$680 million, or 70%, compared with the prior year. The decrease in earnings reflected lower net revenue as well as a higher provision for credit losses, partially offset by lower noninterest expense.
Investment banking net revenue was US$2.9 billion, down by US$1.9 billion, or 39%, from the prior year. Within the group, debt underwriting fees were down 34%, reflecting lower bond underwriting and loan syndication fees, which were negatively affected by market conditions. Also, Fixed Income Markets revenue was US$687 million, down by US$1.8 billion, or 72%, from the prior year. The decrease was primarily due to markdowns of US$1.3 billion on leveraged lending commitments and markdowns of US$339 million on collateralized debt obligation warehouses and unsold positions.
The provision for credit losses was US$227 million, compared with US$7 million in the prior year. The provision was up due to an increase in the allowance for credit losses, primarily related to portfolio growth. Net charge-offs were US$67 million, compared with net recoveries of US$8 million in the prior year. The allowance for loan losses to average loans retained was 1.80% for the current quarter an increase from 1.64% in the prior year. Nonperforming assets were US$325 million, down 29% from the prior year and up 173% from the prior quarter.
Commenting on the quarter, Jamie Dimon, chairman and CEO, said, “Our firm performed well overall in the third quarter, despite challenging credit and market conditions. Asset Management and Treasury & Securities Services delivered record earnings, Card Services and Commercial Banking produced double-digit earnings growth, and Private Equity posted another quarter of strong gains. Investment banking is a volatile business, and while we would typically expect lower earnings in the Investment Bank during a difficult market environment, such as this one, we still believe that our performance could have been a bit better. Finally, Retail Financial Services had good revenue growth while further strengthening its reserves for home equity loan losses.”
“It is gratifying that even in this challenging environment, the firm generated record revenue, net income and earnings per share for a third-quarter and year-to-date, while maintaining a fortress balance sheet and improving the infrastructure of the firm,” Dimon added.
Discussing the firm’s outlook, Dimon said, “We are comfortable that we are building an increasingly strong company, which can capitalize on opportunities in any environment, due to actions taken over the past few years, including: strengthening our levels of capital, reserves and liquidity. Investing in all our businesses, which has: strengthened the quality and diversity of earnings; and, improved our operating systems, cost structure and operating margins.”
Dimon added, “We remain cautious about the future economic environment, but will continue to make investments based upon the long-term outlook for market and client volumes. Our focus will be on investments in areas across our franchise, including the Investment Bank and the retail mortgage business, where we can wisely utilize our balance sheet to better serve our clients and gain market share in the process. I believe our firm is well positioned for the future.”
J.P. Morgan profit rises despite big write-downs
- By: James Langton
- October 17, 2007 October 17, 2007
- 10:30