J.P. Morgan Chase & Co posted a 23 percent increase in quarterly profit as a stabilising labour market helped ease losses on consumer loans. The bank's shares edged lower as its loan books shrank and investment banking profits fell, raising questions about whether it can post robust profit growth in future quarters.
J.P. Morgan is the first of the major banks to report third-quarter results, and the figures show how mixed a quarter this was for the financial sector. While loan losses are improving, trading businesses are flagging and upcoming quarters could be weak.
J.P. Morgan Chief Executive Jamie Dimon sounded cautious notes about the future, noting that client activity in investment banking is muted because of uncertainty about the economy. Despite US unemployment hovering around 9.6 percent, fewer consumers are falling behind on their credit card bills, allowing J.P. Morgan 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.
J.P. Morgan's credit card and consumer loan businesses performed better in the third quarter, but other businesses weakened. Investment banking profit fell by a third to $1.2 billion, which could be a bad sign for rivals Goldman Sachs Group and Morgan Stanley, which report results next week.
Fixed income trading, which fuelled much of 2009's gains in investment banking revenue, posted a 38 percent decline in revenue. Wall Street trading profits are widely expected to fall this quarter. J.P. Morgan's net revenue was $23.8 billion, below analysts' average estimate of $24.64 billion. The bank's shares were down nearly 1 percent to $40.04 in morning trading.
Dimon said he expects mortgage losses to remain high for the next several quarters. "If economic conditions worsen, mortgage credit losses could trend higher," he said in a statement. Profit in J.P. Morgan's mortgage banking and other consumer lending businesses fell 50 percent to $207 million, even as the bank set aside less money against loan losses in the unit. The mortgage business is also under pressure as some legislators push for the largest mortgage lenders to suspend foreclosures across the United States, following allegations.
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