JP Morgan Chase & Co. claims strong third-quarter earnings as its business offset rising loan losses that were predicted to continue in the future. JP Morgan is considered one of the strongest banks as it was able to surpass its difficulties despite last year's economic turmoil, when its competitors were selling off assets.
From July to September, the bank reported a $3.59 billion profit, but reveals that it also spent twice the amount of money it set aside for failed home and credit card loans throughout this quarter. Although the bank's stock surged, its performance should not be taken as a basis on how well other banks did during this period.
Celent senior vice president, Bart Narter, however, said JP Morgan's report clearly showed a trend that Wall Street is coping up and Main Street is negatively affected.
JP Morgan CEO, Jamie Dimon, said that despite its earnings, the company also predicted a significant increase in loan losses. Credit expenses are still high and will remain the same for a long period in terms of consumer lending and card services. While there are signs of stabilization in consumer loans, the bank expresses its concern over its uncertain economic path.
JP Morgan Chief Financial Officer, Mike Cavanagh, said it may be able to increase its five percent per share quarterly dividend to as much as 25 cents if loan losses will stabilize and credit costs will fall. Increases could come next year, but the bank thinks it is too early to tell if the economy will cope.
Investors, however, are not concerned with the bank's dim path, but are focused on big profits reaped by the bank in investment banking, which helped it earn much during the quarter.
JP Morgan's investment bank net income reached $1.92 billion which is a billion higher from a year earlier. Its stock came to $1.40 or 3.1% to $47.06 in the afternoon trading.
Despite the company's successes in some aspects, it may still be vulnerable to unforeseen problems of the industry. Traditional residential mortgages and loans are said to default at a fast pace and are eating the bank's profits. Bank allocation to cover current and future home loan defaults jumped to $3.99 billion while allocation for credit card losses rose to $4.97 billion.
Eric Schopf, vice president at Hardesty Capital Management, believes that the bank's increase in its loan loss reserves has given it an edge on competition. If the economy will continue on a recovery path and will not falter again, the bank may reach its peak loan-loss reserve levels.
However, non-payment and mortgage losses may lead to a continued increase in the unemployment rate in the coming months.