JPMorgan Chase has reported strong third-quarter earnings as its thriving investment banking business more than offset rising loan losses that the bank warns will continue for the forseeable future.
JPMorgan, the first of the big US banks to report earnings for July-September, reported a $US3.6 billion ($3.95 billion) profit but also said it roughly doubled the amount of money it set aside for failed home and credit card loans in the quarter.
Banks have predicted for some time that their loan losses would keep rising. And in JPMorgan's earnings statement on Wednesday, chief executive Jamie Dimon confirmed this trend continues.
"Credit costs remain high and are expected to stay elevated for the foreseeable future in the consumer lending and card services loan portfolios," Dimon said.
Investors did not seem troubled by the bank's dim credit outlook, probably focusing on the fact that big profits in divisions such as investment banking helped the New York-based bank earn 82c a share during the third quarter. Analysts forecast a profit of 52c a share.
JPMorgan said its investment bank net income came to $US1.9 billion, up $US1 billion from a year earlier as fixed income trading thrived.
The company's stock, which closed at $US45.70 on Tuesday, rose 4.5 per cent to $US47.70 in pre-market trading Wednesday.
JPMorgan, the largest US bank by assets, has been considered one of the strongest financial companies during the past year's turmoil. It has performed better than other large competitors in part because of its relatively light exposure to troubled subprime mortgages and commercial real estate.
But traditional residential mortgages and home equity loans as well as credit cards continue to default at a rapid pace and that has eaten into JPMorgan's profits.
In its earnings statement, the bank also described the near-term path of the economy as uncertain.
JPMorgan's loss provision to cover current and future home loan defaults jumped to $US4 billion, while its provision for credit card losses surged to $US5 billion.
Credit card defaults and mortgage losses are likely to continue to creep higher and lag an overall economic recovery. Losses on credit cards typically mirror unemployment, which rose to 9.8 per cent in September.
Economists predict the jobless rate will eclipse 10 per cent in the coming months.
JPMorgan's said the percentage of credit card loans it wrote off as unpayable in the third quarter reached 10.3 per cent of its total portfolio.
Loan losses were also pushed higher by weakness in the portfolios JPMorgan acquired when it bought the failed bank Washington Mutual a year ago.
Fixed-income markets accounted for two-thirds of the investment bank's $US7.5 billion in revenue. While its trading operations were strong, JPMorgan was also able to write up the value of some investments that have started to recover after souring during the peak of the credit crisis.
Overall, JPMorgan generated $US28.8 billion in revenue during the quarter, better than the $US25 billion predicted by analysts.
AP