JPMorgan Net Income Drops 84 Percent on Writedowns

Oct. 15 (Bloomberg) — JPMorgan Chase & Co., the largest U.S. bank by market value, said third-quarter profit fell 84 percent on about $5.8 billion of writedowns, losses and credit provisions.

Net income dropped to $527 million, or 11 cents a share, from $3.4 billion, or 97 cents, a year earlier, the New York- based bank said today in a statement. Shares of the company rose as earnings beat the 18-cent loss analysts predicted on average in a survey by Bloomberg.

JPMorgan took $18.8 billion of writedowns and credit costs before today, less than a third of what Wachovia Corp. and Citigroup Inc. reported. Chief Executive Officer Jamie Dimon has capitalized on the market crisis by taking over Bear Stearns Cos. and Washington Mutual Inc. as they collapsed earlier this year. JPMorgan will get $25 billion from the U.S. government under a bank rescue plan announced yesterday.

“This is a tough industry in a tough business, but they just haven’t been hit the way others have,” Charles Bobrinskoy, vice chairman of Ariel Investments, which manages $13 billion, including about 400,000 JPMorgan shares, said on Bloomberg Television.

JPMorgan, down 6.7 percent this year, climbed 74 cents to $41.45 in New York trading before the official open on the New York Stock Exchange.

Revenue fell to $14.7 billion from $16.1 billion in the same period a year earlier.

WaMu Takeover

Results included $640 million of losses tied to the company’s takeover last month of Washington Mutual Inc. JPMorgan took a $1.2 billion charge to conform the Seattle-based thrift’s loan loss reserves, and a $581 million gain on the transaction. Excluding the WaMu transaction, the quarterly loss was 6 cents a share.

Markdowns in the quarter totaled $3.6 billion on mortgage- related assets and leveraged loans. Credit reserves increased $1.3 billion to $15.3 billion, and Tier 1 capital was $112 billion, or 8.9 percent.

“Given the uncertainty in the capital markets, housing sector and economy overall, it is reasonable to expect reduced earnings for our firm over the next few quarters,” Dimon said in the statement.

The U.S. government plans to spend $250 billion for stakes in banks, with $125 billion going to JPMorgan, Citigroup and seven other banks. As part of the proposal, newly issued, senior unsecured debt and non-interest bearing deposits will be guaranteed by the Federal Deposit Insurance Corp.

Capital Infusions

JPMorgan, Citigroup, Bank of America Corp. and Wells Fargo & Co. will each receive $25 billion, according to people briefed on the matter, while Morgan Stanley and Goldman Sachs Group Inc. will get $10 billion apiece.

Banks and securities firms globally have reported almost $640 billion in losses, writedowns and credit provisions since the start of 2007, according to data compiled by Bloomberg. They’ve raised $611 billion in capital to offset those losses.

JPMorgan’s investment-banking division made $882 million in the third quarter, compared with profit of $296 million the previous year, and revenue rose $1.1 billion.

Earnings at the retail bank declined to $247 million from $639 million.

The bank’s credit-card division had profit of $292 million, or 63 percent below last year’s period. JPMorgan said earlier this year it expects charge-offs to gradually rise during the rest of the year.

Bank of America reported third-quarter earnings of $1.18 billion, down 68 percent from a year earlier. Merrill Lynch & Co., which Charlotte, North Carolina-based Bank of America is buying, may post a net loss of $7.68 billion tomorrow, because of $10 billion of writedowns on loans and bonds, according to an Oct. 8 report by Morgan Stanley analyst Patrick Pinschmidt.

JPMorgan raised $11.5 billion selling common stock Sept. 26 after announcing that it took over the deposits and branches of ailing Washington Mutual Inc. for a $1.9 billion payment to the FDIC.

To contact the reporter on this story: Elizabeth Hester in New York at ehester@bloomberg.net.

Last Updated: October 15, 2008 07:31 EDT
By Elizabeth Hester

Source: Bloomberg

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