Credit Commentary

Chase 2Q earnings soar 36% in Second quarter

By Zarana on Monday, July 20 2009

Strong performance in key divisions helped power JPMorgan Chase & Co. (NYSE: JPM) to a 36% jump in second-quarter profit in 2009, even as its provision for credit losses doubled. The bank has earned $2.72 billion, or 28 cents a share, in the quarter that closed June 30, up from $2 billion, or 53 cents a share, a year earlier. Among the six largest U.S. banks, is the only one not to lose money in any quarter since the recession began in 2007.

Chase hiked the loan loss provision to $8 billion, up from about $3.5 billion a year earlier, reflecting a higher level of charge-offs and continued deterioration in the credit environment. At the same time, the bank’s revenue grew 39% YOY to $25.6 billion from $18.4 billion, due in part to strong performance in its investment banking division. That sector saw revenue jump by a third to $7.3 billion as earnings soared to $1.47 billion, including a record $2.24 billion of investment banking fees and a record $4.93 billion from fixed-income trading.

The bank noted strong performance for its retail banking, commercial banking and securities divisions. Those gains, however, were offset by high costs in its consumer lending and credit card divisions, a trend expected to continue into the foreseeable future. Credit card operations posted a $672 million loss.

For Card Services, average managed loans were $174.1 billion, a 14% YOY increase and a decrease of $9.3 billion, or 5%, from the prior quarter. The increases from the prior year in average managed loans were predominantly due to the impact of the Washington Mutual transaction, lower sales and a higher level of charge-offs. The charge volume was $82.8 billion, a 12% YOY decline. Excluding Washington Mutual, charge volume was $78.3 billion, a 16% YOY decline, driven by a drop in sales volume by 7%.

The managed net charge-off rate for the quarter was 10.03%, up from 4.98% in the prior year and 7.72% in the prior quarter.  In addition to the high default rate, the 30-day managed delinquency rate was 5.86%, up from 3.46% in the prior year and down from 6.16% in the prior quarter, reflecting normal seasonal patterning.

JPMorgan boosted its projected losses on cards and sees a loss rate of about 10% for this quarter. It expects the loss rate from Washington Mutual to be 24% by year-end, the high end of a range it forecast in April.

Managed net revenue was $4.9 billion, a 29% YOY hike, while net interest income was $4.3 billion, up by 43%, from the prior year, driven by the impact of the Washington Mutual transaction and wider loan spreads. On the other hand, Noninterest revenue was $557 million, a 27% YOY declined and noninterest expense has increase by 12% YOY, which was driven by an increase in the credit enhancement for securitization trusts combined with lower securitization income, higher merchant servicing revenue related to the dissolution of the Chase Paymentech Solutions joint venture.

Overall, the bank officials said they were pleased with the performance of $2.7 billion in earnings and record revenue of almost $28 billion, despite a continued difficult economic environment. However, the results were negatively affected by the continued high levels of credit costs in Consumer Lending and Card Services, which the officials expect will remain elevated in the coming quarters.