Friday, July 15, 2011

JPMorgan investment banking gains

NEW YORK - JPMorgan Chase surprised Wall Street on Thursday with a sharp increase in investment-banking income at a time when other banks are warning of layoffs because of a slowdown in trading.

Investors had been expecting investment-banking results at major Wall Street firms to decline on fears of a slowdown after Goldman Sachs Group Inc. said it plans to eliminate 230 jobs beginning in September.

Citigroup analyst Keith Horowitz has warned that overall bank revenue from fixed-income trading would likely drop 30 percent and stock trading by 15 percent in the second quarter. The explanation: investors cutting back on trading because of market volatility caused by the European debt crisis.

As expected, JPMorgan Chase & Co.'s revenue from trading did decline: 18 percent in fixed income and 14 percent in equities from the previous quarter. However, the bank was able to more than make up the difference with higher fees from underwriting stocks and bonds. That lifted JPMorgan's earnings 13 percent in the three-month period ending in June.

The New York bank earned $5.4 billion, or $1.27 per share in the three months ending in June. That was above the $1.22 per share that analysts, surveyed by FactSet, had forecast. JPMorgan earned $4.8 billion, or $1.09 per share, in the same period a year earlier.

JPMorgan's shares gained 2.6 percent, to $40.66, in afternoon trading.

Investment-banking income jumped 49 percent, to $2.1 billion. The bank set aside $2.6 billion for compensation to its investment bankers, down from $2.9 billion in the same period last year. JPMorgan's Fees from debt underwriting increased 24 percent, equity underwriting fees increased 29 percent while fees from advising on mergers and acquisitions soared 69 percent.

JPMorgan shareholder Benjamin Wallace of Grimes & Co in Westborough, Mass., which manages $1.1 billion in assets, said the investment-banking gain "reflects the strength of JPMorgan's diversified franchise."

At the same time, Wallace said he is worried about the bank's ever-expanding litigation reserves. JPMorgan Chief Financial Officer Douglas Braunstein said reserves to fight lawsuits from investors and law-enforcement agencies increased by $1 billion, to $9.7 billion.

"We believe our current reserves are our best estimate ... for a whole multitude of complex foreclosure-related matters ... as well as payments for other settlements including the DOJ (Department of Justice), state attorneys general and others," Braunstein said in a conference call with analysts to discuss earnings.

JPMorgan and other major banks have settled several disputes with regulators and investors in recent weeks, but that work is far from over. Many of the problems stem from banks selling mortgage-backed securities that lost value during the housing bust.

In June, JPMorgan agreed to pay $154 million to the Securities and Exchange Commission over claims that the bank had misled buyers of complex mortgage investments. And, on July 7, JPMorgan agreed to pay $211 million to government regulators after admitting one of its divisions rigged dozens of bids to win business from state and local governments.

by Pallavi Gogoi Associated Press Jul. 15, 2011 12:00 AM

JPMorgan investment banking gains

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