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The Fortress Holds Secure
by Portfolio Staff
Jul 17 2008
Jul 17 2008
J.P. Morgan's earnings shine, but Dimon is cautious.
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Summary:
A financial holding Company whose activities are organized, for management reporting purposes, into six business segments: … View More
Score another one for the fortress balance sheet.
J.P. Morgan Chase, the largest U.S. financial institution to have largely weathered the credit storm, said today that second-quarter earnings fell 53 percent, as it took a hit on mortgage-related losses and on the costs of absorbing Bear Stearns.
But the results easily exceeded estimates, giving investors another reason to have faith in financial stocks a day after Wells Fargo's results impressed.
The bank more than doubled its provision for credit losses, raising its reserves by $1.3 billion, and it wrote down the value of mortgage-related positions and leveraged loans by $1.1 billion. The acquisition of Bear Stearns accounted for $540 million in losses.
For the quarter, J.P. Morgan earned $2 billion, or 54 cents per share, compared with $4.2 billion, or $1.20 per share, in the quarter a year ago. Net revenue, or revenue minus interest expenses, fell 3 percent, to $18.4 billion.
J.P. Morgan's results look stellar compared with other banks and Wall Street firms even as it has also been affected by the housing slump and resulting credit crunch. Thanks to what its chief executive, Jamie Dimon, has called its "fortress balance sheet," J.P. Morgan has not taken write-downs on the scale of others, nor has it scrambled desperately to raise new capital. Its chief rival, Citigroup, has taken more than $40 billion in write-downs.
Still, Dimon struck a strong note of caution today.
"Our expectation is for the economic environment to continue to be weak—and to likely get weaker—and for the capital markets to remain under stress," he said. "We remain conscious that since substantial risks still remain on our balance sheet, these factors will likely affect our business for the remainder of the year or longer."
One area of concern is the bank's credit-card business. Analysts have warned that card issuers face growing losses this year and next as more cash-strapped consumers are late or default on their payments. J.P. Morgan, along with Citi and Bank of America, have the greatest exposure to credit-card debt.
Earnings at J.P. Morgan's card business fell 67 percent in the quarter from a year ago because of a higher provision for credit losses.
J.P. Morgan Chase, the largest U.S. financial institution to have largely weathered the credit storm, said today that second-quarter earnings fell 53 percent, as it took a hit on mortgage-related losses and on the costs of absorbing Bear Stearns. But the results easily exceeded estimates, giving investors another reason to have faith in financial stocks a day after Wells Fargo's results impressed.
The bank more than doubled its provision for credit losses, raising its reserves by $1.3 billion, and it wrote down the value of mortgage-related positions and leveraged loans by $1.1 billion. The acquisition of Bear Stearns accounted for $540 million in losses.
For the quarter, J.P. Morgan earned $2 billion, or 54 cents per share, compared with $4.2 billion, or $1.20 per share, in the quarter a year ago. Net revenue, or revenue minus interest expenses, fell 3 percent, to $18.4 billion.
J.P. Morgan's results look stellar compared with other banks and Wall Street firms even as it has also been affected by the housing slump and resulting credit crunch. Thanks to what its chief executive, Jamie Dimon, has called its "fortress balance sheet," J.P. Morgan has not taken write-downs on the scale of others, nor has it scrambled desperately to raise new capital. Its chief rival, Citigroup, has taken more than $40 billion in write-downs.
Still, Dimon struck a strong note of caution today.
"Our expectation is for the economic environment to continue to be weak—and to likely get weaker—and for the capital markets to remain under stress," he said. "We remain conscious that since substantial risks still remain on our balance sheet, these factors will likely affect our business for the remainder of the year or longer."
One area of concern is the bank's credit-card business. Analysts have warned that card issuers face growing losses this year and next as more cash-strapped consumers are late or default on their payments. J.P. Morgan, along with Citi and Bank of America, have the greatest exposure to credit-card debt.
Earnings at J.P. Morgan's card business fell 67 percent in the quarter from a year ago because of a higher provision for credit losses.
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