JPMorgan earnings beat estimates on mortgage lending gain

Fixed Income

Fixed-income and equity-markets revenue dropped to $6 billion from $6.64 billion a year earlier and $3.27 billion in the fourth quarter, the company said.

“You saw very strong flows in the underlying customer businesses in both fixed-income and equity markets,” Braunstein said on the call. JPMorgan oversees $150 billion in its wealth- management unit and has $17.9 trillion of assets under custody in treasury and securities services, he said. Both were record highs, according to Braunstein.

Trading results, which got a lift in the third quarter as the price of bank debt fell, didn’t get the same accounting benefit in the fourth quarter or first three months of this year. The bank booked a $907 million loss from its so-called debt-valuation adjustment in the first quarter as the price of its debt rose, compared with a $1.9 billion gain in the third quarter.

Loss Reserves

JPMorgan had one-time items including DVA that, in total, reduced earnings by about $500 million or 9 cents a share, Braunstein said. The bank benefited from a $1.8 billion reduction in mortgage and credit-card loan loss reserves and a $1.1 billion gain from a Washington Mutual bankruptcy settlement.

Retail banking, which includes home loans and checking accounts, earned $1.75 billion, up from $533 million in the fourth quarter and a loss of $399 million a year earlier. The net interest margin, which measures the profit margin on lending, declined to 2.61 percent from 2.89 percent a year earlier.

Demand for loans rose as the unemployment rate fell to 8.2 percent at the end of March from 8.9 percent a year ago.

Fewer consumers fell behind on their credit-card payments in the first quarter compared with the same period in 2011. Loans at least 30 days overdue, a signal of future write-offs, fell to 2.56 percent from 3.57 percent a year earlier. Write- offs dropped to 4.4 percent from 6.97 percent the prior year and increased from 4.29 percent in the previous quarter.

Wells Fargo

JPMorgan and Wells Fargo & Co. are the first of the top six U.S. banks to release results, and are projected by analysts to post the highest earnings of the group. Wells Fargo, the fourth- largest U.S. bank, reported a 13 percent increase in first- quarter profit, reaching a record high of $4.25 billion and beating analysts’ estimates.

“This rally can and will continue,” Miller said in an April 10 research note. Miller favors JPMorgan, Wells Fargo and other large mortgage banks over their smaller peers. Although bank stocks have outperformed the broader Standard & Poor’s 500 Index in the past three months, the industry still has “room to run,” Miller said.

Bank valuations remain low, with lenders in the KBW Index trading at an average price-to-earnings ratio of about 11.5 yesterday, compared with an average of 14 for the S&P 500 Index.

Trading and investment banking also picked up from “dreadful” levels in the fourth quarter, Miller said.

Citigroup Inc., the third-biggest behind JPMorgan and Bank of America Corp., may say it earned $3.12 billion on an adjusted basis when it releases results on April 16, the survey of analysts shows.

Goldman Sachs Group Inc. may say it earned $1.85 billion when it announces its results on April 17. Charlotte, North Carolina-based Bank of America may report a profit of $1.73 billion on April 19 and Morgan Stanley may say it earned $259 million when it reports results that day.

www.bloomberg.com

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