JPMorgan Chases, Catches Revenue

Good news on the banking front: JPMorgan Chase (JPM) says first-quarter company-wide revenue jumped about 48% to $26.9 billion.

But increased credit costs -- especially in card and retail financial services -- knocked net income down to $2.1 billion, or $0.40 a share, from $2.4 billion, or $0.67 for the same period a year earlier. Analysts expected the bank to earn $0.32 a share.

“It’s reasonable to expect additional increases to credit reserves if the economic environment worsens,” Jamie Dimon, JPMorgan Chase’s chief executive officer, said in a prepared statement. “Yet we are confident that even a highly adverse economic scenario would not compromise our overall strength and stability.”

JPMorgan Chase added $4.2 billion to credit reserves - boosting the total to $28 billion. The bank extended about $150 billion in new credit to about 4.5 million customers through credit cards, mortgages, and auto and student loans. In addition, the bank purchased about $34 billion in mortgage-backed and asset-backed securities.

Investment banking revenue totaled $8.3 billion and net income was $1.6 billion. Earlier this week, Goldman Sachs (GS) reported a first-quarter profit of $1.8 billion.

JPMorgan Chase now ranks number 1 in deposits, following last September’s $1.9 billion acquisition of Washington Mutual.

Dimon said:

“We generated record firm-wide revenue; record revenue and net income in the investment bank; and benefited from underlying growth in retail banking, including increased deposits and checking accounts, higher mortgage refinancing volumes and excellent progress on the Washington Mutual integration.”

Wells Fargo (WFC) also reported encouraging earnings, suggesting the worst may be over for the banking sector. But it might be wise to remain cautious.

Record-low mortgage rates set off the refinancing boom, but it’s unlikely to last because the number of people who qualify is limited. Some analysts estimate that about 20% of homeowners are underwater - the houses are worth less than the loan.

Nevertheless, deposit growth is likely to remain strong as long as the economy is dicey. Overall, JPMorgan Chase and other banks need a robust economy to generate consistent earnings. There are some indications of a turnaround, or at least a bottom. But the unemployment rate is 8.5%, including the loss of about 3.3 million jobs in the last 5 months - and that demands caution.