J P Morgan Rises After Earnings

123jump.com Staff
17 Oct, 2007
New York City

J P Morgan reported third quarter revenue rise of 4% to $16.11 billion and net income growth of 2% to $3.3 billion. Earnings per share increased 5% to 97 cents. The company set aside $2.4 billion to cover losses, up 67% from a year ago. Provision for losses from home equity loans were increased from $1.4 billion to $2.0 billion. The bank maintained Tier 1 capital ratio at 8.4%.

[R]10:00AM New York – J P Morgan reported third quarter profit of $3.4 billion and credit losses provision of $2.4 billion.[/R]

J P Morgan ((JPM)), banking and financial services group, reported third quarter earnings rise of 4% to $16.11 billion from a year ago. Net income increased 2% to $3.3 billion in the period and earnings per share increased 5% to 97 from 92 cents.

The company also issued 38 cents per share dividend and book value per share increased to $35.72 from $32.75 a year ago.

Net managed revenue was $17.0 billion, up by $603 million, or 4%, from the prior year. Noninterest revenue of $8.1 billion was down by $1.5 billion, or 15%, reflecting markdowns on leveraged lending funded and unfunded commitments and lower fixed income trading results. These decreases were offset partially by increased asset management, administration, and commissions revenue, which benefited from a higher level of assets under management and by strong private equity gains.

Net interest income was $8.8 billion, up by $2.1 billion, or 31%, due to trading net interest income; growth in liability and deposit balances, primarily in the wholesale businesses; a higher level of credit card loans and fees; and the impact of the Bank of New York transaction. These increases were offset partially by a narrower net interest spread in the Corporate segment and a shift to narrower–spread deposit products.

The managed provision for credit losses was $2.4 billion, up by $944 million, or 67%, from the prior year. The wholesale provision for credit losses was $351 million, compared with $35 million, reflecting an increase in the allowance for credit losses, primarily related to portfolio growth. Wholesale net charge-offs were $82 million, compared with net recoveries of $11 million, resulting in net charge-off rates of 0.18% and (0.03)%, respectively.

The total consumer managed provision for credit losses was $2.0 billion, compared with $1.4 billion in the prior year, reflecting an increase in the allowance for credit losses, largely related to home equity loans, and higher net charge-offs. Consumer managed net charge-offs were $1.7 billion, compared with $1.4 billion, resulting in managed net charge-off rates of 1.96% and 1.69%, respectively. The firm had total nonperforming assets of $3.2 billion at September 30, 2007, up by $881 million, or 38%, from the prior-year level of $2.3 billion.


Revenues in the investment banking fell 39% to $2.95 billion from a year ago and 49% from $5.8 billion a year ago. Net income in the division was reported at $296 million, 70% lower from a year ago.


Investment banking fees were $1.3 billion, down by 6% from the prior year, reflecting lower debt underwriting fees offset partially by record advisory fees. Debt underwriting fees were $468 million, down 34%, reflecting lower bond underwriting and loan syndication fees, which were negatively affected by market conditions. Advisory fees were $595 million, up 36%, driven by a strong performance across all regions. Equity underwriting fees were $267 million, down 3%, driven by lower revenue in Europe and Asia, partially offset by strong performance in the Americas in common stock and convertible offerings.


Fixed Income Markets revenue was $687 million, down by $1.8 billion, or 72%, from the prior year. The decrease was primarily due to markdowns of $1.3 billion (net of fees) on leveraged lending funded and unfunded commitments and markdowns of $339 million (net of hedges) on collateralized debt obligation (CDO) warehouses and unsold positions. Fixed Income Markets revenue also decreased due to very weak credit trading performance and significantly lower commodities results, compared with a strong prior-year quarter. These lower results were offset partially by record revenue in both rates and currencies.


Equity Markets revenue was $537 million, down 18% from the prior year, as weaker trading results were offset partially by strong client revenue across businesses. Fixed Income Markets and Equity Markets had a combined benefit of $454 million from the widening of the firm’s credit spread on certain structured liabilities, with an impact of $304 million and $150 million, respectively. Credit Portfolio revenue was $392 million, up 45% from the prior year, primarily due to higher trading revenue from hedging activities and gains from loan workouts.


Average loans retained were $61.9 billion, up by $2.9 billion, or 5%, from the prior quarter. Average fair value and held-for-sale loans were $17.3 billion, up by $2.5 billion, or 17%, from the prior quarter. Fair value and held-for-sale loans at September 30, 2007, were $20.2 billion, up by $8.6 billion, or 76%, from the prior quarter. Both average and end-of-period fair value and held-for-sale loans reflect a net increase in third-quarter, 2007 leveraged lending activity.


Net revenue in retail financial services rose 18% to $4.2 billion and income declined 14% to $639 million. The provision for credit losses was $680 million, compared with $114 million in the prior year. The current-quarter provision includes a net increase of $306 million in the allowance for loan losses related to home equity loans as continued weak housing prices have resulted in an increase in estimated losses for high loan-to-value loans. Home equity net charge-offs were $150 million (0.65% net charge-off rate), compared with $29 million (0.15% net charge-off rate) in the prior year. In addition, the current-quarter provision includes an increase in the allowance for loan losses, reflecting increased loan balances resulting from the decision to retain rather than sell subprime mortgage loans. Subprime mortgage net charge-offs were $40 million (1.62% net charge-off rate), compared with $13 million (0.36% net charge-off rate) in the prior year.


The bank reported a total of 10.6 million checking accounts, up 15% after the acquisition of 615,000 accounts from the Bank of New York. Average total deposits increased to $205.3 billion, up 10% or $18 billion. Number of branches increased to 3,096, an increase of 419 from a year ago.

Mortgage banking net loss was $48 million, compared with a net loss of $83 million in the prior year. Net revenue was $406 million, up by $208 million. Net revenue comprises production revenue and net mortgage servicing revenue. Production revenue was $176 million, down by $21 million, as markdowns of $186 million on the mortgage warehouse and pipeline were offset partially by an increase in mortgage loan originations and the classification of certain loan origination costs as expense.


Net revenue in credit card services increased 6% to $3.8 billion and net income increased 11% to $786 million. Commercial banking revenue rose 8% to $1.009 billion and net income increased 12% to $258 million.


Treasury and securities services increased 17% to $1.75 billion and net income rose 41% to $360 million. Asset management revenue jumped 35% to $2.2 billion and income rose 51% to $521 million in the quarter.

[R]8:30AM New York – Markets in India drop nearly 9% on crackdown on anonymous trading.[/R]

Asian stocks fell after a week of sharp gains. India plunged nearly 10% during the session on new regulation requiring hedge funds investors to trade under accounts registered with the government.

India led the decliners with a fall of 1.8% followed by losses in Philippines of 1.5%, in South Korea and Thailand of 1.1%, and in Japan of 1.07%. Hong Kong led the gainers with a rise of 1.2% followed by increase of 0.9% in Singapore.

The Securities & Exchange Board of India said that it plans to limit anonymous trading conducted in the derivative market by international hedge funds through what is known as participatory notes. Regulators are worried that anonymous trading is inflating market values and may hurt small investors. The proposed plan will limit the exposure through derivative contracts and will require at least 40% collateral in the margin account. The owners of participatory notes will have eighteen months to transfer the securities held through derivative contract in their name and register with the regulator.

At the worst of the plunge Nifty CNX Index fell 9.3% to 5,143.20 and Sensex 30 index on Bombay Stock Exchange dropped 9.1% or 1,743.96 to 17,307.90 before the market were halted for one hour of trading.

Finance Minister P Chidambaram said that foreign investors are welcome to invest in India but said that international fund flows must be controlled. The government is worried that derivative contracts used by offshore investors may invite illegal sources of funds and may end up benefiting terrorist organization. The steep rise in rupee is also a concern.

SEBI, after the market close, announced a series of steps to curb trading through participatory notes and plans to implement new requirements on October 25th.

Rupee has appreciated 15% against dollar while currencies of other Asian nations have gained less than 8%. More than half of investments attracted to India’s stock market are through participatory notes, where investors can hide their true identity. International investment in stocks market has jumped to $17 billion from less than $11 billion a year ago. In the last three weeks alone investment through these anonymous notes was estimated to exceed $2.5 billion.


[R]6:00AM New York, 7:00PM Tokyo- Tokyo stocks decline led by a weakness in banks. Demand for services increased 1.3%.[/R]

In Tokyo trading Nikkei 225 shed 1.07% or 182.61 to 16,955.31 while the broader Topix Index fell 1.5% to 1,600.29. Banks led the decliners on the worries that U.S. mortgage market turmoil may have an impact on its economy and hurt earnings of banks in Japan.

Of the Nikkei 225 stocks 57 rose, 164 dropped, and 4 traded unchanged. Resona Holdings led decliners, falling 7.46%, followed by Shinsei Bank retreating 6.55%. Sanyo Electric slid 6.12% after abandoning plans to sell its semi-conductor business unit to a private equity group Advantage Partners which has failed to raise the 110 billion-yen on the constrained credit market.

Japan’s Ministry of Economy, Trade and Industry said that the Tertiary and Industry Activity, which measures demand for services increased 1.3% to a seasonally adjusted 111.3 in August, the highest since 1988. The index had declined to a downwardly revised 0.4% in July.

Of the eleven service sectors covered by the report, six were up. Wholesale and retail trade index increased 2.0%; electricity, gas, heat supply and water rose 8%; eating, drinking places and accommodation soared 3.7%; finance and insurance industry was up 1.1%, while transport added 1.3% and information and communications increased 0.9%.

Services, learning support, real estate, medical healthcare and welfare and compound services were down. Hot temperatures increased sales of air conditioners and apparel.

According to METI the value of equity trading in Japan had increased in August by 55% to a record 77.88 trillion-yen as investors unwound their positions on concerns of the risk posed by the U.S. housing slump.

Japan planned to spend 9 billion yen for gas and oil exploration along the Pacific Coast and the Sea of Japan, driving budget for natural resource development by 12% to 176 billion yen. Norway’s Petroleum Geo-Services ASA will deliver a $213million vessel for three-dimensional seismic surveys. Separately, Japanese officials from Itochu Corp, Mitsubishi Gas Chemicals, Mitsubishi Heavy Industry, Nippon Oil Exploration Limited, JGC Corp, LNG Japan, Cosmo Oil Company Limited and Sumitomo Mitsui Bank are in Papua New Guinea for a week long meeting to explore possible investment opportunities in the gas and oil sector.

Crude oil rose for the six day, gaining 1.7% to a record $87.61 per barrel. Oil companies however slumped. Inpex Holdings fell and Nippon Oil Corp tumbled.

Of the Nikkei 225 index shares Yahoo Japan led the gainers with a rise of 5.30%, followed by gains in Hino Motors of 3.49%, in Casio Computer of 3.46%, in Denki Kagaku of 3.28% and in Asahi Kasei Corp of 3.23%.

Resona Holdings led the decliners with fall of 7.46% followed by losses of 6.55% in Shinsei Bank, 6.12% in Sanyo Electric, 5.84% in Sumitomo Mitsui and 5.56% in Nomura Holdings. Mitsubishi UFJ Financial Group fell 4% and Mizuho Financial Group and 3.80%. Sanyo Electric fell after it aborted plans to sell its semiconductor business and now it will reorganize the business and work to improve operating margins. Sony lost 0.74% and Toyota Motor Corporation retreated 2.03%.

Exporters plunged as the yen firmed against the dollar, rising 116.73 from 116.78.

Banks fell in Tokyo trading after the U.S. Treasury Secretary Henry Paulson said that the housing market correction is likely to take longer than anticipated earlier and it poses a significant risk to the economy. He also cautioned that regulated banks are still grappling with the size of the problems and banks need to improve accounting of these assets.

The Securities and Exchange Board of India, known as SEBI, proposed to limit exposure in derivative market. International hedge funds are using participatory notes to invest in India and hide true identity from regulators. The recent crackdown will require hedge funds to transfer their holdings to accounts under their names registered with the authorities.

Sensex in Mumbai, India trading fell nearly 10% but managed to recover at a close with a loss of 1.8%. Stocks linked to emerging markets fell sharply on the news. JFE Holdings lost 3.8% to 7,670 yen, Mitsui O.S. K lost 3.5% to 1,930 yen.