JPMorgan bounces back with earnings of $4.8b

NEW YORK - Spiralling losses in the investment banks of the biggest US financial corporations threatened to engulf the system last year, but it seems that investment banking profits could be saving financial firms from weaknesses elsewhere.

JPMorgan Chase, the first major banking conglomerate to report third-quarter earnings, warned that credit card and mortgage customers of its retail banking division were defaulting on their loans in inflated numbers, but that investment banking revenue had rebounded so strongly that the company overall made more money than analysts predicted.

Investors pushed JPMorgan shares up 4 per cent to a one-year high in early afternoon trade yesterday, and in the process pushed the benchmark Dow Jones index back above 10,000 for the first time in 12 months.

When the Dow Jones industrial average first passed 10,000, traders tossed commemorative caps and uncorked champagne. This time around, the feeling was more like relief.

Cheers went up briefly when the Dow passed the milestone for the first time since October 2008, that time on the way down.

JPMorgan posted net income of US$3.6 billion ($4.8 billion) - 82c per share, far above the 52 cents Wall St had expected. The blockbuster figure contrasts with the US$527 million in the same quarter last year, when the collapse of Lehman Brothers triggered a financial panic.

A little over US$1.9 billion of net income was derived from the investment banking side of the business, more than double last year.

The firm has been the number one issuer of debt and equity on behalf of corporate clients this year, and it also continued to revel in the exceptional profitability of fixed-income trading.

With Lehman and Bear Stearns out, and some other rivals retrenching, the big players that remain are pocketing more money from wider spreads.

It is a phenomenon expected to be on show in Goldman Sachs' results today, and it is one of the reasons Wall St is once again expected to pay boomtime-style bonuses at the end of this year.

JPMorgan investors shrugged off more gloomy news from the retail banking side of the business - which includes the branches acquired when Washington Mutual collapsed last year, as well as the Chase brand - and a sombre outlook statement by Jamie Dimon, the chief executive.

The bank put US$2 billion more into reserves to cover consumer loans it is no longer certain of having repaid. The total is US$31.5 billion, 5.3 per cent of the value of all the loans. The company warned that the US economy was still uncertain, but hoped the period of adding to these provisions was coming to a close.

"Credit costs remain high and are expected to stay elevated for the foreseeable future in the consumer lending and [credit] card services loan portfolios," he said.

"While we are seeing some initial signs of consumer credit stability, we are not yet certain this trend will continue."

- INDEPENDENT, AP