JPMorgan Chase & Co., the largest U.S. bank by market value, eked out a third-quarter profit as the takeover of Washington Mutual Inc. cushioned about $5.8 billion of writedowns, losses and credit provisions.
Net income dropped 84 percent to $527 million, or 11 cents a share, from $3.4 billion, or 97 cents, a year earlier, the New York-based bank said today. Excluding a $581 million gain on the WaMu deal, the loss was 6 cents a share, less than the 18-cent loss analysts predicted in a Bloomberg survey.
Chief Executive Officer Jamie Dimon said he expects earnings to decline in coming quarters as ``all business lines'' are hurt by the slowing economy. JPMorgan is poised to receive a $25 billion infusion from the U.S. government under a bank-rescue plan announced yesterday.
``We have to be prepared that it gets a lot worse,'' Dimon, 52, said on a conference call with analysts.
JPMorgan, down 6.7 percent this year before today, dropped 24 cents to $40.47 at 11:44 a.m. in New York Stock Exchange composite trading.
Revenue fell to $14.7 billion from $16.1 billion in the same period a year earlier. Return on equity, a gauge of how effectively the firm reinvests earnings, dropped to 1 percent in the third quarter from 11 percent a year earlier.
Results included $640 million of losses tied to the company's takeover last month of Washington Mutual. After taking a $1.2 billion charge linked to the Seattle-based thrift's loan- loss reserves, JPMorgan posted the $581 million gain on the purchase.
Extraordinary Gain
JPMorgan took over the failed lender's deposits and branches on Sept. 25 for a $1.9 billion payment to the Federal Deposit Insurance Corp.
Chief Financial Officer Michael Cavanagh said when the deal was announced that JPMorgan didn't expect to book any extraordinary gain on the acquisition.
Markdowns in the quarter on mortgage-related assets and leveraged loans totaled $3.6 billion. About 40 percent of the mortgage losses stemmed from the firm's purchase of Bear Stearns Cos. in April, Dimon said. Credit reserves increased $1.3 billion to $15.3 billion.
Tier 1 capital, a measure regulators use to gauge a bank's ability to withstand loan losses, was $112 billion, or 8.9 percent of risk-weighted assets. The minimum for a ``well- capitalized'' rating from regulators is 6 percent.
JPMorgan has taken $20.5 billion of writedowns and credit costs, a fraction of the amounts reported by Wachovia Corp. and Citigroup Inc. Dimon capitalized on the market turmoil by taking over Bear Stearns and WaMu as they succumbed to bad mortgage investments and a crisis of investor confidence.
`Tough Industry'
``This is a tough industry in a tough business, but they just haven't been hit the way others have,'' Charles Bobrinskoy, vice chairman of Ariel Investments, which manages $13 billion, including about 400,000 JPMorgan shares, said on Bloomberg Television.
The U.S. government plans to spend $250 billion for stakes in banks, with $125 billion going to JPMorgan, Citigroup and seven other lenders. As part of the proposal, newly issued, senior unsecured debt and non-interest bearing deposits will be guaranteed by the FDIC.
JPMorgan, Citigroup, Bank of America Corp. and Wells Fargo & Co. will each receive $25 billion, according to people briefed on the matter, while Morgan Stanley and Goldman Sachs Group Inc. will get $10 billion apiece.
Prime Brokerage
Wells Fargo, which is buying Wachovia, said today that third-quarter profit fell as home prices tumbled and customers missed mortgage payments. Net income dropped 24 percent to $1.64 billion, or 49 cents a share, from $2.17 billion, or 64 cents, a year earlier, the San Francisco-based company reported.
Dimon said today that the U.S. Treasury bank rescue plan is ``powerful'' and will ``unclog'' credit markets. JPMorgan will use the capital to make loans, he said.
Banks and securities firms globally have reported more than $640 billion in losses, writedowns and credit provisions since the start of 2007, according to data compiled by Bloomberg. They've raised $611 billion in capital to offset those losses.
JPMorgan's investment-banking division earned $882 million in the third quarter, compared with profit of $296 million the previous year, and revenue rose $1.1 billion.
Earnings at the retail bank declined to $247 million from $639 million. The firm has seen an increase of as much as 25 percent in its prime brokerage business, which caters to hedge funds, Dimon said.
Credit-Card Losses
The bank's credit-card division had a profit of $292 million, 63 percent below last year's period. JPMorgan said earlier this year it expects charge-offs to gradually rise during the rest of the year.
Cavanagh, on the conference call with analysts today, predicted credit-card losses of 6 percent to 7 percent next year, and he said the bank expects to set aside additional reserves as the economy slows.
Bank of America reported third-quarter earnings of $1.18 billion, down 68 percent from a year earlier. Merrill Lynch & Co., which Charlotte, North Carolina-based Bank of America is buying, may post a net loss of $7.68 billion tomorrow, because of $10 billion of writedowns on loans and bonds, according to an Oct. 8 report by Morgan Stanley analyst Patrick Pinschmidt.
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