The Day the Banks Turned the Corner
J.P. Morgan Chase Posts 55% Surge In Quarterly Profit
By ROBIN SIDEL / WSJ April 15, 2010
Surprisingly confident consumers and small-business owners helped propel J.P. Morgan Chase & Co. to a 55% profit surge in the first quarter, increasing optimism among investors that U.S. banks are rebounding from the crisis that staggered the industry.
For the first time since the housing bubble burst, J.P. Morgan Chairman and Chief Executive James Dimon expressed hope that the worst is over, citing broad economic improvement around the world and signs of recovery in loan categories ranging from credit cards to mortgages to small businesses.
"This could be the makings of a good recovery," said Mr. Dimon, who warned that earlier indications of economic turnaround might be unsustainable. "I think the chance of a double dip is rapidly going away," he said.
The buoyant results pushed J.P. Morgan shares to their biggest one-day percentage gain since October, while raising hopes that bank-earnings season will bring more evidence of resilience by financial institutions that were on the ropes last year.
The second-largest U.S. bank in assets, behind Bank of America Corp., reported unexpectedly strong net income of $3.33 billion, or 74 cents a share, up from $2.14 billion, or 40 cents a share, in last year's first quarter. Revenue rose 5% to $28.17 billion as the New York company leaned on its fast-growing investment bank to overcome weakness in commercial and consumer banking.
The investment-banking operation raked in three-fourths of J.P. Morgan's overall profit, fueled by record-high fixed-income revenue and the company's aggressive push to take advantage of the disarray or disappearance of rivals during the financial crisis.
Propped up by taxpayer-funded capital and massive government intervention in the markets, many banks that survived the worst of the crisis now are in position for a profit jump as the economic rebound gains traction. Other banks due to report earnings this week and next, including Bank of America on Friday, will show how widespread the rising confidence is among lenders.
Even mighty institutions like J.P. Morgan still are haunted by bad loans, and more than 100 U.S. banks are expected to fail this year because of sloppy lending practices and other catastrophic blunders. Forty-two banks have failed so far in 2009.
Mr. Dimon said his rising optimism is triggered partly by recent conversations with business owners around the U.S. In meetings where the CEO asks how many entrepreneurs plan to hire employees in the next year, "20%, 30%, 40% raise their hands," he said. Large and medium-size corporate customers of J.P. Morgan remain more cautious, with few tapping available credit lines.
John Sang Wilbur, founder of South America Snow Sessions, a six-year-old Guilford, Conn., company that organizes summertime ski, snowboard and Spanish-language instruction trips to Argentina, expects business to increase 35% as consumers grow more confident about spending money.
Mr. Wilbur scrambled to get a new business credit-card last year when the issuer of his old card stopped extending credit. He found a new issuer but soon plans to switch to a cheaper card from J.P. Morgan's Chase unit.
J.P. Morgan reduced its provision for credit losses, a barometer of future loan agony, by 30% to $7 billion in the first quarter. The company essentially reversed $1.1 billion previously set aside for credit-card losses, citing a decline in payments that are at least 30 days late. While the card unit still is unprofitable and defaults are at an all-time high, the first-quarter improvement in "early stage" delinquencies is a sign that some consumers are having less trouble paying their bills.
"The credit trends are moving in the right direction," said Credit Agricole Securities analyst Michael Mayo, who upgraded his rating on J.P. Morgan to a "buy" from a "sell" after the results were announced.
Mr. Dimon cautioned that the company isn't comfortable enough to accelerate plans to boost its stock dividend. Executives previously said the dividend could be increased in mid-2010, with the decision based on improving, sustained trends in unemployment and other factors.
The CEO also showed signs of worry and exasperation about the specter of new regulation, including financial-overhaul legislation winding through Congress and the likelihood of higher capital requirements. Mr. Dimon, a frequent critic of Washington, snapped at an analyst who asked about the impact from a bank fee been proposed by the Obama administration.
"Call it what it is, which is a punitive bank tax," Mr. Dimon said.
At J.P. Morgan's investment bank, net income rose 30% to $2.47 billion in the first quarter. In retail banking, the company swung to a net loss of $131 million from year-earlier profit of $474 million. Mortgage default rates showed another rise. J.P. Morgan's credit-card business had a $303 million loss in the latest quarter, an improvement from the $547 million loss a year earlier.
J.P. Morgan shares rose 4.1%, or $1.86, to $47.73 in New York Stock Exchange composite trading at 4 p.m. The Dow Jones U.S. Banks Total Stock Market Index climbed 3.75% to 3080.70, its highest level since November 2008, and is up 26% for the year to date. |
