Capital Markets

From JPMorgan: Stark Yet Encouraging News

With its earnings off 84 percent, and amid its warnings of capital-markets uncertainty and reduced net, it still feels "well-positioned" to cope.
Stephen TaubOctober 15, 2008

JPMorgan Chase beat consensus estimates in reporting a $527 million profit in the third quarter. Still, results were down 84 percent from last year. And the financial services giant also reported net markdowns of $3.6 billion from mortgage-related positions and leveraged lending exposures.

Further, chairman and CEO Jamie Dimon warned that business will worsen before it improves. “Given the uncertainty in the capital markets, housing sector and economy overall, it is reasonable to expect reduced earnings for our firm over the next few quarters,” he said in a press release.

Even so, Dimon assured his balance sheet is in pretty good shape. He stressed that with a total loan loss allowance of $19 billion (including Washington Mutual) and an 8.9 percent Tier 1 capital ratio, the bank is “well-positioned to handle the turbulent environment” and “to continue to invest in our businesses and serve our clients well.”

Dimon also said he expects the Sept. 25, Washington Mutual acquisition will add $0.50 per share to earnings in 2009. However, he did concede that given the troubled housing market, JPMorgan has incorporated expectations of significant credit losses from Washington Mutual’s home-lending portfolio into the structure of the transaction.

In September, the bank raised $11.5 billion in capital after agreeing to buy Washington Mutual.

JPMorgan’s stock initially slumped more than 4 percent in morning trading, but sharply reversed to positive territory within a half hour after Dimon, in a conference call, concentrated on the company’s positive outlook as having potential for succeeding in the troubled future. As the volatility continued in the market, JPMorgan shares then slid back again, as reports circulated about negative trends for retailers.

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