J.P. Morgan Beats Expectations -- 7th Update

By Dow Jones Business News, 
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By Saabira Chaudhuri

J.P. Morgan Chase & Co. reported second-quarter profit that beat expectations as trading revenue held up better than the bank had forecast, sending shares higher.

J.P. Morgan reported a profit of $6 billion, or $1.46 a share, compared with $6.5 billion, or $1.60 a share, a year earlier. The latest earnings figures included a legal expense of 13 cents a share.

Revenue was down 3% to $24.45 billion, and was down 2.3% on an adjusted basis to $25.35 billion. Analysts polled by Thomson Reuters expected a per-share profit of $1.29 on revenue of $23.76 billion.

Shares popped 1.4% in recent premarket trading as results beat analyst estimates.

J.P. Morgan's earnings report comes just two weeks after Chief Executive James Dimon publicly disclosed that he has throat cancer. The 58-year-old Mr. Dimon has said he would continue to be actively involved in the company during his treatment and that the cancer is curable. He was on the conference call with the media Tuesday morning, his first public remarks since announcing the diagnosis, ahead of a separate call with analysts and investors.

Mr. Dimon said he was "feeling great" and that doctors had found no evidence of cancer anywhere except in the location where it had originally been detected near his lymph nodes.

During and after his treatment, Mr. Dimon said he plans to be involved in the management of the bank. Still, he said he would need a few weeks to rest up afterward--during which time he would "take it easy" but still be managing the bank.

He said that the board of directors at the bank had the same succession plan as before his diagnosis and said J.P. Morgan had an "exceptional group" of executives under him.

During the quarter, J.P. Morgan reported that its markets revenue--which includes revenue from its large fixed income arm as well as from equities trading--fell 14% from a year earlier to $4.65 billion.

The decline was much less severe than the 20% that J.P. Morgan in May had predicted and is roughly in line with the 15% decline that rival Citigroup Inc. reported on Monday.

J.P. Morgan's better-than-expected trading results come after analysts recently noted that the trading activity levels have improved in recent weeks, with Citigroup analyst Keith Horowitz predicting that markets revenue for the industry could be flat to up in the second half of the year.

Revenue from fixed-income markets--one of J.P. Morgan's traditional strengths--was down 15% from the prior year on what the bank said was "historically low levels of volatility and lower client activity across products. Equity Markets revenue of $1.2 billion was down 10% from the year earlier, on what J.P. Morgan said was weaker derivatives revenue.

J.P. Morgan's litigation expense for the quarter was $700 million, flat with a year-earlier, but up from the first- quarter, in which J.P. Morgan reported no material legal expenses.

Meanwhile, compensation expense dropped 5% from a year earlier and 3.2% from the prior quarter to $7.61 billion.

Investors are expected to focus much of their attention on Mr. Dimon's health. Few large banks associate their image with a strong single leader as much as J.P. Morgan, where Mr. Dimon has been both chairman and CEO since the end of 2006. Mr. Dimon's diagnosis has raised questions both about the bank's succession plan as well as the extent to which the CEO will have to pull back from regular duties while undergoing treatment.

But J.P. Morgan got a leg up from investment banking fees, as equity underwriting revenue jumped rose about 4% and advisory revenue jumped 31%. That strength was somewhat offset by debt underwriting revenue, which dropped about 6%.

The bank again showed weakness in its mortgage business as it, like its peers, continues to reel from a sharp slowdown in refinancing.

Mortgage originations of $16.8 billion fell 66% from the prior year although these were roughly flat from the prior quarter. Mortgage banking profit was $709 million, down $433 million from the prior year.

Still, the bank in its second-quarter results highlighted several positive signals from consumers and businesses. Average loan balances in the commercial banking unit were $140.8 billion, up 7% from a year earlier and 2% from the prior quarter.

J.P. Morgan has been reining in costs as a way of making up for sluggish revenue growth. For the latest period, the bank said its noninterest expense fell 2.7% from a year earlier to $15.43 billion. J.P. Morgan last month said it could cut pay for some of its investment-bank employees if trading revenue stays weak, while The Wall Street Journal recently reported that the bank's Chief Operating Officer, Matt Zames, has redoubled the firm's focus on cost cutting to include relocating employees, revising third-party contracts and re-examining relationships dealing with market data, among others,

The bank's results were hurt by higher provisions for loans that could potentially sour. The credit-loss provision totaled $692 million, compared with a provision of $47 million a year earlier.

--Emily Glazer and Erik Holm contributed to this article.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires


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