JPMorgan Books Record Quarter, Dimon Says Housing Has ‘Turned The Corner’
The talk Thursday was about potential criminal charges in the London Whale case, but JPMorgan Chase changed the narrative Friday morning by crushing the consensus earnings view with a record third-quarter.
Shares of the bank were up 1.7% in pre-market trading, after it booked $5.7 billion in net income on $25.9 billion in revenue for the July-September quarter. On a per-share basis, the bank earned $1.40, miles ahead of the Street’s $1.22 estimate. Profits were up 33.9% from a year ago.
The bank got a big boost from its mortgage business — excluding the impact of repurchase losses the units revenue was up 36% at $1.8 billion — and Jamie Dimon said the firm believes the housing market “has turned the corner.”
Wells Fargo, another bank benefiting from the comeback in the housing market, is also due to report earnings Friday morning.
Dimon, JPMorgan’s chairman and chief executive, touted the strength of the bank’s balance sheet, highlighting the firm’s estimated Basel III Tier 1 common capital ratio of 8.4%, up from 7.9% the prior quarter, and its Basel I capital ratio of 10.4%.
JPMorgan’s quarter was not without a few wrinkles, as headline results were impacted by special items both positive and negative.
Cutting mortgage loan loss reserves delivered a $900 million pretax benefit to boost earnings by 14 cents per share after tax, while extinguishing certain trust preferred securities delivered an $888 million benefit (14 cents per share after tax). On the other side of the ledger, the company took $825 million in charge-offs on certain residential loans (13 cents per share) and a $684 million pre-tax expense (11 cents per share) for additional litigation reserves.
All told, the net impact of the items added 4 cents per share to the bottom line. Excluding those items the bank’s third quarter still beat the Street’s expectations.
As for that London Whale, JPMorgan said the synthetic credit portfolio that blew a hole in its credibility earlier this year when it resulted in a massive surprise loss “experienced a modest loss” in the third quarter but not something material enough to be mentioned outside of the overall fixed-income reporting of its investment bank.