NEW YORK | Despite losses from souring home loans and tough-to-sell corporate debt, JPMorgan Chase & Co. managed to beat Wall Street's expectations and eke out a 2 percent profit rise in the third quarter.
The nation's third-largest bank sees a rocky road ahead for the lending business, and gave few details about how it's going to weather the fourth quarter. But executives said they have the pieces in place to navigate it properly -- and investors appeared confident, too, sending the bank's shares up more than 2 percent.
The New York-headquartered bank reported a profit despite marking down $1.3 billion on leveraged loans; $339 million in debt obligations backed by collateral, including subprime mortgages; and $186 million in mortgages it has issued and that are in the pipeline. It also padded its provisions -- essentially, its emergency fund for loan losses -- by about $2 billion.
The bank's results, which brought its investment banking income down 70 percent from a year ago and retail financial services income down 14 percent, were nothing spectacular compared to the double-digit percentage gains the bank's profit has logged in previous quarters.
But JPMorgan did much better than Citigroup Inc., where profit fell 57 percent after the nation's largest financial institution wrote down nearly $3 billion in mortgage-related and highly leveraged corporate debt, plus an additional $636 million in fixed-income trading losses.
The nation's second largest bank, Bank of America Corp., is scheduled to report its earnings Thursday, and analysts on average expect profits of $1.06 a share.
"Overall, it was a very good quarter for JPMorgan, given the challenging market environment," Goldman Sachs analyst William F. Tanona wrote in a note to investors. Tanona, who rates the stock "neutral," said he expected investors to reward the company by bidding up its shares.
Analysts at Standard and Poor's, meanwhile, reiterated their "buy" recommendation on the stock, saying "results were ahead of peers."
JPMorgan shares advanced 91 cents, or 2 percent, to $46.02 in afternoon trading. Its shares have traded in a range of $42.16 to $53.25 in the past year.
Citigroup shares were down 31 cents at $44.48.
JPMorgan said Wednesday that net income totaled $3.37 billion in the July to September period, up from $3.30 billion in the same period last year. Earnings per share rose to 97 cents from 92 cents last year, beating the average analyst estimate of 90 cents. Total net revenue climbed 4 percent to $16.11 billion from $15.55 billion.
Both earnings and revenue were the highest the New York-based bank has seen during a third quarter.
JPMorgan was helped by record earnings in asset management, which rose 51 percent, and in Treasury and security services, which rose 41 percent. Also posting solid gains, card services income rose 11 percent and commercial banking income jumped 12 percent.
With $23.8 billion in the pipeline for deals that haven't yet closed, much of JPMorgan's future performance will depend on whether the credit markets continue to improve after a freeze-up in August. In total, JPMorgan has $40.6 billion of leveraged lending commitments it's seeking to unload.
So far, the company has benefited greatly since the Fed lowered rates: Results improved by $454 million from the widening of its credit spreads.
JPMorgan's reliance on the credit markets improving is likely a big reason the bank has agreed to go in on a fund with Citigroup and Bank of America announced Monday to buy up asset-backed securities. The goal of the fund is to restore confidence in a market that plunged in August.
JPMorgan still foresees a deteriorating credit landscape going forward, though. Its provision for credit losses was $1.79 billion, and including the effect of credit card securitizations, managed credit loss provisions came to $2.36 billion.
JPMorgan's credit-loss provisions between January and September this year have totaled $4.32 billion, more than double the $2.14 billion in provisions it made in the first nine months of 2006.
"We do expect charge-offs to go up this quarter," said JPMorgan's chairman and chief executive Jamie Dimon in a conference call with reporters.
