Inside JPMorgan Chase's Earnings
Jul 14th 2011 12:35PM
Updated Jul 14th 2011 3:35PM
JPMorgan Chase (JPM) reported a second-quarter profit of $5.4 billion, or $1.27 per share this morning, up from $4.8 billion, or $1.09 per share a year ago.
When these numbers are released, I always like to dig into the earnings supplemental and find out exactly where that money came from. Broken out by segment, here's how it looked last quarter:
As in previous quarters, JPMorgan's investment bank carried the overall results. The skewing doesn't end there: Break down the results even further, and you'll see that fixed-income, currencies, and commodities trading makes up far more than half of the company's investment banking segment. This trading division likely represented more than one-fifth of the bank's total quarterly income.
Notoriously transitory -- here today, gone yesterday -- the market typically discounts these profits compared with other, more stable, lines of business. This might help explain why overall valuations look cheap. JPMorgan, like most Wall Street banks, is essentially a massive but marginally profitable bank, with a tiny yet amazingly profitable trading desk attached.
Where JPMorgan does lend money, things are looking up. Delinquencies in the bank's credit card division have dropped every quarter over the past year, with early-stage delinquencies down 40%. Non-performing assets in the retail financial unit have declined more than 10% in the past year.
Falling loan losses in the credit card division let JPMorgan release $1 billion (pre-tax) from loan-loss reserves this quarter, boosting earnings by $0.15 per share. The bank previously set aside this money to cover bad loans, but it's now bringing that cash back for shareholders' benefit. CEO Jamie Dimon has obsessively warned in the past that he doesn't consider this real net income, but it does reflect the bank's improving results.
JPMorgan remains the best of breed among large banks. However, this may only be a small triumph. The industry remains besieged with woe: Housing remains in decline; unemployment is still above 9%; rules outlining the future of trading and derivative markets are still largely unknown. Big banks look cheap, but in this environment, that may be where they belong.