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JPMorgan's Loans Don't Prevent Small Profit

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By MADLEN READ, The Associated Press

Published: October 18, 2007

NEW YORK - Despite losses from souring home loans and tough-to-sell corporate debt, JPMorgan Chase & Co. managed to beat Wall Street's expectations and eke out a 2 percent profit rise in the third quarter.

The nation's third-largest bank sees a rocky road ahead for the lending business and gave few details Wednesday about how it's going to weather the fourth quarter. Executives said, however, that they have the pieces in place to navigate it properly - and investors appeared confident, too, sending the bank's shares up more than 2 percent.

The New York-based bank reported a profit despite marking down $1.3 billion on leveraged loans; $339 million in debt obligations backed by collateral, including subprime mortgages; and $186 million in mortgages it has issued that are in the pipeline. It also padded its provisions - essentially, its emergency fund for loan losses - by about $2 billion.

The bank's results, which brought its investment banking income down 70 percent from a year ago and retail financial services income down 14 percent, were nothing spectacular compared with the double-digit percentage gains the bank's profit has logged in previous quarters.

JPMorgan, however, did much better than Citigroup, which reported Monday that profit fell 57 percent after the nation's largest financial institution wrote down nearly $3 billion in mortgage-related and highly leveraged corporate debt, plus an additional $636 million in fixed-income trading losses.

The nation's second-largest bank, Bank of America Corp., is scheduled to report its earnings today, and analysts on average expect profits of $1.06 a share.

JPMorgan shares advanced $1.26, or 3 percent, to close at $46.37 Wednesday. Its shares have traded in a range of $42.16 to $53.25 in the past year.

JPMorgan said net income was $3.37 billion in the July through September period, up from $3.30 billion in the same period last year. Earnings per share rose to 97 cents from 92 cents last year, beating the average analyst estimate of 90 cents. Total net revenue climbed 4 percent to $16.11 billion from $15.55 billion.

With $23.8 billion in the pipeline for deals that have not closed, much of JPMorgan's future performance will depend on whether credit markets continue to improve after a freeze-up in August. In total, JPMorgan has $40.6 billion of leveraged lending commitments it is seeking to unload.

The company has benefited greatly since the Fed lowered rates: Results improved by $454 million from the widening of its credit spreads.

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