JPMorgan Chase Q1 profits jump 33% to €5bn

JPMorgan Chase & Co’s first-quarter profit rose 33% to a record, beating analysts’ estimates on cost cuts and an improvement in consumer credit quality that let the bank reduce loan-loss reserves.

First-quarter net income climbed to $6.53bn (€5bn), or $1.59 a share, from $4.92bn, or $1.19, in the same period a year earlier, the New York-based company said.

JPMorgan chief executive officer Jamie Dimon boosted profit by shrinking expenses 16%, as he grappled with a 4% fall in total net revenue. Earnings also were buoyed by a drop in late payments, which helped the consumer bank reduce its loan-loss reserve by $1.2bn.

“We saw an increase in release of reserves of about half a billion dollars more than we expected, and that also helped make the number come in favourable,” said Marty Mosby, a bank analyst at Guggenheim Securities LLC in Memphis.

Among the biggest expense cuts was a $2.4bn reduction in additional funds set aside for legal costs, which fell to about $300m. While mortgage volume jumped 37%, mortgage-banking net income dropped 31% to $673m as record-low interest rates squeezed profits. Margins on lending fell to 2.37% from 2.61% a year earlier.

“Housing prices continued to improve and new home purchases are also starting to come back,” Dimon said in the statement.

Revenue in the quarter fell to $25.1bn. Revenue at the consumer and community bank, which includes home loans and checking accounts, declined 6% to $11.6bn.

“Revenues were broadly in line with forecasts, but included some disappointment” on mortgages, Richard Staite, an analyst with Atlantic Equities in London, wrote in a note to clients.

US lenders extended $482bn in mortgages in the first quarter, up 29% from a year earlier, as government refinancing incentives and record low borrowing costs propelled demand, according to estimates from the Mortgage Bankers Association. To stimulate economic growth, the Federal Reserve has kept its benchmark interest rate near zero since December 2008, and is buying $85bn a month in bonds to push down long-term rates.

“Rates continue to be low, there are still a lot of people who haven’t” refinanced yet, Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and analyst at FBR Capital Markets in Arlington, Virginia, said.

After JPMorgan posted three straight years of record net income, Dimon is cutting expenses, responding to sluggish global growth and low interest rates that compress profit margins on lending and yields on investments. The firm is cutting 19,000 jobs through 2014.

— Bloomberg