JPMorgan 33% profit jump beats estimates on reserve releases

JPMorgan Chase & Co.’s first- quarter profit rose 33% to a record on expense reductions and an improvement in consumer credit quality that allowed the bank to boost earnings by reducing loan-loss reserves.

First-quarter net income climbed to $6.53 billion, or $1.59 a share, from $4.92 billion, or $1.19, in the same period a year earlier, the New York-based company said today in a statement. Twenty-eight analysts surveyed by Bloomberg estimated earnings per share of $1.39 adjusted for a one-time accounting item.

JPMorgan Chief Executive Officer Jamie Dimon, 57, lifted profit by shrinking expenses 16%, as he grappled with a 4% reduction in total net revenue. Earnings also were buoyed by a drop in late payments, which helped the consumer bank reduce its loan-loss reserve by $1.2 billion. The shares fell 0.6% as some analysts questioned whether JPMorgan can continue posting record earnings.

“The reserve releases aren’t sustainable,” said Charles Peabody, an analyst with Portales Partners in New York. Profits on interest-bearing investments “are shrinking still, that’s not healthy. Mortgage banking is going to get weaker from here.”

Peabody estimates that the reserve releases, a tax-benefit and a one-time accounting adjustment resulted in about 26 cents per share of “non-quality” earnings in the quarter, without which JPMorgan would have missed estimates.

Litigation Costs

Among the biggest expense cuts was a $2.4 billion reduction in additional funds set aside for legal costs, which fell to about $300 million. The company also took a $300 million loss on a private-equity investment within the chief investment office, Dimon told reporters.

While mortgage volume jumped 37%, mortgage-banking net income dropped 31% to $673 million as record-low interest rates squeezed profits. Margins on lending declined to 2.37% from 2.61% a year earlier. Home prices and purchases have rebounded, yet banks aren’t making as much money on lending because interest rates remain low.

“We continue to see the compression on profit margins,” Chief Financial Officer Marianne Lake told reporters on a conference call.

Revenue in the quarter fell to $25.1 billion. Revenue at the consumer and community bank, which includes home loans and checking accounts, declined 6% to $11.6 billion.

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