Loans to Brazil Depress Profit at J. P. Morgan

J. P. Morgan & Co.’s first-quarter profit declined by 3.2% from the previous year, mainly because of reclassified loans to Brazil, the bank holding company reported Wednesday.

Morgan, the nation’s fourth-largest bank holding company, said its net income for the quarter ended March 31 was $226.4 million, compared to $233.9 million a year earlier.

Morgan last month placed about $1.3 billion in medium- and long-term loans to Brazil on non-accrual status in response to the nation’s suspension of foreign bank debt interest payments on Feb. 20. A number of other major U.S. banks also have reclassified Brazilian loans.

Brazil suspended the payments on $67 billion in loans pending the restructuring of its debt.

When loans are classified as non-accruing, the banks record interest payments when they actually are received, rather than when they are due. As a result, reclassifying the loans forces the banks to subtract interest payments originally recorded but not yet received.

Morgan said its loan reclassification reduced first-quarter net income by $20 million. Without the action, its first-quarter profit would have been 5.3% higher than for the same period last year, the company said.

Net interest earnings dropped to $490.4 million from $499.4 million, largely because of the Brazilian loans, while non-interest income dipped to $322 million from $336.7 million.

The company said its non-interest operating expenses rose to $371.1 million from $303.5 million a year earlier.

Morgan took a $35-million provision for possible bad loans, down from $70 million a year earlier, increasing its total allowance for bad loans to $953 million as of March 31 from $815 million a year earlier.