Last updated: April 12, 2013 1:55 pm

JPMorgan hits record income of $6.5bn

JPMorgan sign©Reuters

JPMorgan Chase saw its net income rise 33 per cent to $6.5bn in the first quarter as the largest US bank by assets produced steady revenues while cutting expenses.

The results – the first in Wall Street’s earnings season – beat analysts’ expectations of about $5.4bn in net income.

Retail banking, powered partly by mortgage originations, and corporate and investment banking, driven by debt issuance, contributed to what Jamie Dimon, chief executive, called “a very good start to the year”.

However, he warned that although there were signs that the US economy was “healthy and getting stronger”, “loan growth across the industry has been softer this quarter”.

The bumper profits banks including JPMorgan have enjoyed on mortgages, a controversial side effect of Federal Reserve policy, appear to be on the wane. JPMorgan noted “lower margins and higher expenses” from mortgage production, crimping income.

The Fed is buying billions of dollars of mortgage-backed securities in an attempt to loosen credit in quantitative easing known as QE3. Until recently, this was providing a record margin between the price banks wrote mortgages at and the price they sold them on. Fiercer competition now appears to have eroded the margin.

“We continued to see compression in production margins. We’ve come off the peaks at the beginning of 2012,” said Marianne Lake, chief financial officer. But, she added, “it feels like there’s not another step change to happen in margin”.

Richard Staite, analyst at Atlantic Equities, noted that mortgage production revenue fell 29 per cent from the previous quarter “even though volume was flat, suggesting a large contraction in the margin”.

JPMorgan cut 3,000 jobs in its consumer banking and mortgage business during the quarter.

Reducing reserves for bad credit flattered the results. Releasing mortgage loan loss reserves boosted net income by $403m and lower credit card loan loss reserves boosted net income by $310m.

In the corporate and investment bank, net income rose 28 per cent to $2.6bn. But after stripping out the distortive effect of changes to the bank’s own credit spreads, both revenue and income were down 2 per cent in the division.

Revenues were lower in advisory and equity underwriting, offset by a more significant increase in debt underwriting to take overall investment banking fees 4 per cent higher to $1.4bn – but 17 per cent lower than the fourth quarter of last year.

Trading activity was down, though the decline was more modest than some analysts had expected. Fixed income trading produced $4.8bn in revenue, down 5 per cent from the same period last year, while equity trading saw revenues fall 6 per cent to $1.3bn.

Overall revenue fell $909m to $25.8bn. Earnings per share rose by 40 cents to $1.59, compared with analysts’ estimates of about $1.39.

Return on equity was 13 per cent compared with 11 per cent in the same period last year and the previous quarter.

Mr Dimon brushed off questions about an upcoming investor vote on whether to strip him of his chairmanship. “I’m not going to get into what the board wants to do,” he said. “It’s a private matter.”

Last year 40 per cent of votes at the annual meeting went in favour of splitting the roles of chairman and chief executive. Mr Dimon declined to say whether the board would alter its structure even if more than 50 per cent of shareholders wanted it to happen.

After meeting President Barack Obama and his top security advisers on Thursday with other Wall Street chief executives, Mr Dimon said his company was concerned about an uptick in cyber attacks.

“Years ago it was a bunch of hackers ... Now you’re talking about state-sanctioned folks, hundreds of programmers taking over not just PCs but servers and mainframes, thousands of times stronger and more sophisticated attacks: in some cases to steal intellectual property, in some cases just to wreak havoc and some cases to steal money.”

Shares in JPMorgan fell about 1 per cent to $48.90 on the opening of trading in New York.

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