8:15 PM
JPMorgan beats profit forecast but revenue weak
Addison Ray
By Elinor Comlay
NEW YORK | Wed Oct 13, 2010 9:46pm EDT
NEW YORK (Reuters) - JPMorgan Chase & Co (JPM.N) reported quarterly earnings that could be difficult for banking rivals to match, but weak revenue highlighted feeble loan demand and declining trading volumes in the industry.
JPMorgan mostly boosted its profit by setting aside less money to cover bad loans. Net income rose 23 percent but Chief Executive Jamie Dimon said returns are "still not particularly good for a company of our size."
Like its major competitors, the second-largest U.S. bank is struggling to find ways to boost growth in its main businesses -- consumer lending and investment banking.
"People are concerned about where the revenue growth is going to come from," said Keith Davies, principal and research analyst at Farr, Miller & Washington. "I don't think this quarter does anything to alleviate those concerns."
JPMorgan, the first major lender to report third-quarter results, also faced numerous questions about the latest headwind to batter the industry -- allegations that thousands of home foreclosures may have been illegal because they were improperly documented.
A prolonged probe into foreclosure processes could damage the fragile housing market, Dimon warned.
Dimon said demand for investment banking services remained weak.
"There continues to be a little more uncertainty out there about both the economy and what the political landscape entails, and so we haven't seen a rush toward activity," he said on a conference call.
Small and mid-sized businesses are starting to borrow more from the banks, but larger companies are choosing to raise money from the capital markets, Dimon said.
Commercial deposit levels remain high as companies hoard cash, a sign that they are wary about the future.
JPMorgan posted third-quarter net income of $4.42 billion, or $1.01 a share, up from $3.59 billion, or 82 cents a share, a year earlier. Analysts on average expected 90 cents a share, according to Thomson Reuters I/B/E/S.
U.S. unemployment is hovering around 9.6 percent but does not seem to be getting worse, which means fewer consumers are falling behind on their credit card bills. This allowed JPMorgan to set aside much less money to cover bad loans -- $1.6 billion in the third quarter, compared with $5 billion in the same quarter last year.
The bank is dipping into reserves set aside for future credit losses because regulations require it to, but "we are taking down as little as we can ... because we're very cautious," Dimon said.
A TOUGH ACT TO FOLLOW
Analysts and investors said Citigroup Inc (C.N) and Bank of America Corp (BAC.N) may have trouble matching JPMorgan's results when they report next week.
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