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JPMorgan Chase Profit Jumps Despite Continued Mortgage Woes

Jpmorgan Settlement

First Posted: 07/14/11 01:36 PM ET Updated: 09/13/11 06:12 AM ET

NEW YORK -- JPMorgan Chase, the second-largest U.S. bank by assets, reported a 13 percent jump in profits, to $5.4 billion, as lending continued to slide, fewer borrowers fell behind on their payments and problems with its mortgage practices again dampened earnings.

The lender's overall revenues were up 7 percent to $26.8 billion, thanks to increased fees from its various units, offsetting declining interest income from lending to borrowers. Its profit was also boosted by a release of $1.2 billion in reserves back into income, helping it to beat analysts' estimates.

The bank set aside less cash to cover potential losses on soured loans, further boosting earnings and indicting that the lender believes the number of delinquent borrowers will continue to dwindle as the slumping economy slowly improves. The company set aside $1.8 billion to cover credit losses, a 46 percent decrease from the same period last year, its earnings documents show.

JPMorgan, which traditionally kicks off banks' quarterly earnings season, is a good proxy for the state of the industry and for the broader economy because of its size and reach. Its business and corporate lending rose 15 percent, but its consumer loans dropped 7 percent relative to last year. Though the bank has less overall loans outstanding, its trading assets have soared 15 percent since last year, to $458.7 billion. Profits from its investment banking unit surged 49 percent to $2.1 billion. Compensation to bank employees is up 6 percent year to date to $15.8 billion.

The bank, benefiting from its status as a giant bank, grew even larger, increasing its assets 12 percent from last year to $2.2 trillion. Its deposit base also jumped, rising 18 percent to more than $1 trillion.

But as the bank beat expectations, which predicted that trading revenue would slump and revenue growth would shrink, its mortgage business continues to drag down its bottom line.

The New York-based company recorded about $2.5 billion in mortgage-related losses, split between costs of "foreclosure-related matters" like settlements with regulators and borrowers for home seizure abuses, additional litigation reserves and losses from buying back soured mortgages from investors and home loan giants Fannie Mae and Freddie Mac.

JPMorgan has set aside $3.6 billion to satisfy claims that it buy back soured mortgages, though that amount doesn't cover liabilities tied to loans made by Washington Mutual, the lender it acquired during the height of the financial crisis in 2008. JPMorgan insists the Federal Deposit Insurance Corporation is liable for those losses, but the FDIC says otherwise.

The lender has lost $3.3 billion over the last several quarters paying out on these repurchase claims.

JPMorgan is one of five lenders in negotiations with the U.S. Department of Justice and state attorneys general to settle claims tied to foreclosure abuses. The five banks may be forced to collectively pay up to $30 billion in penalties. The investigation by the state legal officers is still in its nascent stages, though. Regulators don't know how widespread the abuses actually are, yet are still racing towards a settlement, The Huffington Post reported on Monday.

"I think there's a real question about whether there's been adequate investigation" into the alleged abuses, Elizabeth Warren, an adviser to President Barack Obama and Treasury Secretary Timothy Geithner, told a congressional panel Thursday. Warren is the temporary custodian of the Bureau of Consumer Financial Protection, a new federal agency charged with protecting borrowers from abusive lenders.

"I would do anything to get it done today," Jamie Dimon, JPMorgan's chief executive, said of the settlement talks on a conference call Thursday.

"Honestly, I would get in an airplane, fly down there, and get it done today if I could," he said of the talks on another conference call. "It would be good for the United States of America to finish this stuff and move on."

"This overhang of issues and foreclosures and processes and procedures and litigation is not a good thing for the health of the economy," Dimon added.

He predicted that while foreclosures will continue to weigh down the housing market, in "12 to 18 months from now, they're going to start coming down, not going up."

The state of the economy, the banking industry and the housing market will come into sharper focus as JPMorgan's peers report earnings in the coming days. Citigroup will report its earnings on Friday. Bank of America and Wells Fargo, the largest and fourth-largest U.S. banks by assets, will announce earnings next week.

William Alden contributed to this report.

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Shahien Nasiripour is a senior business reporter for The Huffington Post. You can send him an email; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get e-mail alerts when he reports the latest news. He can be reached at 1-917-267-2335.

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