JPMorgan, Wells beat forecasts
In the midst of one of the nation’s worst credit crises, JPMorgan Chase & Co. and Wells Fargo & Co. managed to report better-than-expected third-quarter results Wednesday. But even two of the country’s strongest banks proved they are not immune to the widespread credit problems their peers face.
Both banks reported sharp declines in profit as they took hits on investments and increased their credit reserves to prepare for troubles ahead. But given the waning economy and the current shake-up in the markets, the credit problems did not come as a surprise to most analysts. Though many remained cautious about the worsening economy, analysts generally viewed the results as positive.
“If you look at the reports today, there is no surprise that they ran into some more credit issues,” said Michael Sheldon, chief strategist at RDM Financial Group. “Overall, the long-term growth story remains a positive in the eyes of investors.”
JPMorgan Chase, which bought Washington Mutual Inc. last month and Bear Stearns Cos. in March, earned $527 million, or 11 cents a share, in the period ended Sept. 30. That was down 84% from $3.4 billion, or 97 cents, a year earlier. Analysts polled by Thomson Reuters, on average, had predicted a loss of 21 cents a share.
Wells Fargo, whose pending purchase of Wachovia Corp. puts it squarely in the top ranks of U.S. banking, reported a 25% profit decline.
The San Francisco-based bank earned $1.64 billion, or 49 cents a share, compared with $2.17 billion, or 64 cents, a year earlier.
Analysts had expected a profit of 41 cents a share.
Investors sent shares of Wells Fargo down 17 cents to $33.35 as the broader market tumbled. JPMorgan shares dropped $2.22, or 5.5%, to $38.49.
JPMorgan’s investment bank wrote down $3.6 billion from its mortgage investments and leveraged lending exposures, largely because of the troubled assets at Bear Stearns. It also boosted loan-loss reserves by $1.3 billion to $15.3 billion, or $19 billion including Washington Mutual, to prepare for a worsening environment for lending.
Wells Fargo increased its credit reserves by $500 million, lowering earnings by 10 cents a share, in anticipation of higher losses in several of its consumer credit businesses. Overall, the bank took a $2.5-billion provision against potential bad loans.
Both banks took hits on their investments in Fannie Mae and Freddie Mac, which were seized by the government last month.
Wells Fargo, particularly, benefited from a huge influx of deposits during the quarter. Core deposits increased $23.7 billion, or 30%, from June 30, while average loans grew by $53.5 billion, or 15%, from a year earlier.
“Wells Fargo clearly appears to have been a beneficiary again of a systemwide flight to quality on the asset side,” wrote Sandler O’Neill & Partners analyst R. Scott Siefers in a note to clients. “Still, we cannot get too excited about such strong balance-sheet growth at a time when credit trends are deteriorating and the economy appears headed for some very choppy waters in coming quarters.”
