The Banking and Strategy Initiative

Chillin' out till it needs to be funded

Bank Results Season: J P Morgan on way to becoming leader in Mortgages to renew Universal Banking (Q1 2013)

Even as JP Morgan results beat expectations handsomely to come very near our $1.62 per share mark with $6.5 Bln in profits for the first quarter’s $25B+ raising hopes of a $100 Bln in revenues after a good 2 years, it has further increased its business in originations by 37% to a sizable $52 bln in a segment it trailed the leader by almost a $100 b in the June 2012 quarter. The growth comes in a quarter when competitors Wells Fargo and Bank of America are churning through a reducing share of refinancing in mortgages and vertically dropping NIMs. in the long run JP Morgan would be able to sustain NIMs better because of its CIB business in fixed income to finance the mortgages increasingly being held on their own balance sheets for credit rating safety and to utilize idle Capital. regulatory Capital deals apart,WFC and BAC will also struggle with the absence of global counterparties from US securitisation deals while JP Morgan builds on is global franchises. The bump from loan loss reductions is a $0.28 per share for the bank and was already factored in the bank’s expected $1.39 earnings thruput

It also looks from the quarter’s results that JP Morgan for one is completely done with provisioning for pre 2008 Credit card and mortgage folios, reduction in loan loss reserves further adding back almost next to nothing compared to the $30 B in loan loss reserves the big four had built up by 2009 and 2010 esp at BofA. Buy backs accounted for another $2.6 B this quarter apart from the more than 25% bump in dividend to 38 cents per share setting the stage for the first big hurrah for the sector after the regulatory roller coaster holding it back from 2011 Basel II Tier I common equity scores are up to 8.9%

Including mortgages, credit originated and on existing accounts is finally north of $200 B , a good $123 bln in credit provided to corporates after the push towards SMe lending added $4 bln to the loan book. The question of split of Chairman and CEO posts is still open and will come up again next month even as Wall Street competitor dealt with the question in time before its next shareholder meeting

On improved numbers, the bank would be proud to count a sixth drop in Non interest Expenses to a tad above $15 B from $18.3 B last year in March but failed to shore up Consumer Banking net income as it suffered from the industrywide crunching of NIMs as it paid out more on deposit portfolios

Consumer Banking (CCB)

Revenues were down on year and quarter by 6% to $11.6 B and Net income correspondingly came down to $2.59 B on better card outstandings and mortgage originations. Expenses were lower having no outgo on foreclosure settlements saving $200 M from last year’s Q1. Fee income was down by more than 10% with decreasing mortgage charges

Auto originations remained thick in the new bee hive as another $6.5 B was added a 18% recovery from Q4 troubles. The bank also managed to add the promised 100 branches over last year, scoring net additions at 91 and the improvement in expenses is despite the increased investments in branch infrastructure


Mortgage fee revenues were down by more than 25% to land at a good $1.5 B

Corporate investment Banking

The recovery in CIB was more palpable as expected, Income jumping 28% over last  year Q1 and the bank looking at its own AM analysis recommending the confusion in allocation of Capital best served by ringfencing of the capital (check reuters / bloomberg reports of April 8-11, 2013). It regains #1 position in Fee income and DVA impacts were negligible this year quarter. The topline of $10 bln ex DVA  compares well with last year

Fee income was just about stable at $1.4 bln and trading revenue was discussed consolidated across Fixed and quity segments at $6 B. orgiantion income would have counted in munis and the warehousing question for marketmaking is still an unsolved riddle but regulators are unlikely to do anything to ruffle thus good year for the investment banks




Commercial Banking and Asset Management pitched in with another stable quarter at $1.6 B and a 10% higher $2.65 B for the Asset management team


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This entry was posted on April 12, 2013 by in Financial Markets and tagged , , , , , , , , .


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