By Emily Glazer And Peter Rudegeair
A supersized tax benefit helped J.P. Morgan Chase & Co.
report a 22% increase in third-quarter profit, but investors
focused on weakness in the firm's trading division.
The largest U.S. bank by assets reported a profit of $6.8
billion, or $1.68 a share. That compares with a profit of $5.57
billion in the same period of 2014. Excluding $2.2 billion of tax
benefits and other one-time items, however, earnings came in at
$1.32 a share, a nickel shy of the $1.37 a share polled by analysts
polled by Thomson Reuters.
Shares dropped 1.3% to $60.75 after hours.
Revenue at the New York fell 6.9% to $22.78 billion, or $23.54
billion on an adjusted basis. Analysts had expected $23.69
billion.
The bank attributed its significant tax benefits to the
"resolution of tax audits and the release of deferred taxes." Its
effective income tax rate for the third quarter was -1.1% compared
with 29.7% a year ago. Chief Financial Officer Marianne Lake said
on a call with media that it was related to "a lot of complex tax
issues during the financial crisis."
Trading revenue decreased 15% to $4.34 billion from $5.07
billion in the third quarter of 2014. Chief Executive James Dimon
said at an investor conference in September that trading results
would be "similar" to other banks, following comments from Bank of
America Corp. and Citigroup Inc. executives that revenue at their
units trading equities, bonds, currencies and commodities were
expected to fall about 5% in the third quarter.
Revenue from trading bonds, currencies and commodities fell 23%
to $2.93 billion, while revenue from trading stocks rose 9% to $1.4
billion. The bank said in a news release that weakness in trading
commodities and credit products such as corporate bonds was
partially offset by strength in trading currencies, emerging-market
debt and equity derivatives.
Adjusting for revenue declines that the bank expected due to
prior decisions to exit some businesses, bond trading revenue fell
11%.
"We were pretty pleased, we went through these very volatile
markets," Mr. Dimon said on a Wednesday call with media. "The daily
result bounced around a little bit but...that will happen in
markets like that."
Ms. Lake added that rates were down slightly but "reasonably
solid" and currencies and emerging markets had a lot of volatility
but the bank capitalized on the flow.
The bank reported a 4.5% year-over-year rise in investment
banking revenue to $1.61 billion for the quarter and reported a 35%
drop in equity underwriting fees. Debt underwriting fees, however,
rose 17% compared with last year's third quarter, and advisory fees
for M&A also rose 22% year over year.
J.P. Morgan extended $29.9 billion in mortgages in the quarter,
an increase of 41% from the $21.2 billion the bank extended in the
third quarter a year ago. Profits in its mortgage division, one of
the largest in the U.S. by volume, were $602 million, up 29% from
the $465 million it reported in the third quarter of 2014.
Costs decreased 2.7% to $15.37 billion from $15.8 billion in the
third quarter of last year. Banks have been under continued
pressure to keep costs in check as interest rates have remained
low, which limits the profit margins in lending businesses.
Ms. Lake said on a call with media that the bank will beat its
expense guidance of $57 billion for the year, likely to come in
closer to $56.5 billion. That's due to more investments in cards
marketing and "incremental efficiencies" rather than one big
change.
The bank's legal tab totaled $1.3 billion in the third quarter,
higher than the $1.06 billion it reported in the same period a year
ago and the $291 million it recorded in the second quarter. The
Wall Street Journal reported over the summer that J.P. Morgan is
expected to settle in coming weeks with the Securities and Exchange
Commission and Commodity Futures Trading Commission for more than
$150 million regarding whether the bank steered some clients into
its own investment products without proper disclosures.
Overall profit at the corporate and investment bank was $1.46
billion, a 13% decrease from $1.68 billion in the same period last
year. In the consumer bank, profits were $2.63 billion compared
with $2.53 billion in the third quarter a year ago. J.P. Morgan's
commercial bank earned $518 million, a 23% decrease from the $671
million it earned in the year-ago quarter, and the bank's asset
management unit reported profits of $475 million compared with $590
million in the third quarter of 2014. Ms. Lake added that the
increase was related to a "range of matters" including a recent CDS
settlement.
J.P. Morgan set aside $682 million in the third quarter to cover
loans that could potentially turn bad in the future. That compares
with $757 million in the third quarter of 2014 and $935 million in
the second quarter of 2015. The bank lost $963 million to loan
defaults, or 0.51% of its overall portfolio, compared to a 0.65%
charge-off rate in the third quarter.
Return on equity, a measure of the J.P. Morgan's profitability,
was 12% in the third quarter compared with 10% a year earlier. J.P.
Morgan faced some questions from analysts and investors earlier
this year over whether it might be better for shareholders if the
global bank broke itself up into smaller, more manageable
units.
The bank continued to cut its workforce last quarter, shedding
1,781 people to 235,678.
J.P. Morgan kicks off the third-quarter earnings season for
large U.S. banks. Shares in J.P. Morgan hit an all-time record of
$70.61 in July but have fallen 13% since then. For the year, they
are down 1.7% compared with a 5.1% decrease in the KBW index of
bank stocks over the same period.
--Maureen Farrell contributed to this article.
Write to Emily Glazer at emily.glazer@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 13, 2015 18:17 ET (22:17 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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