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What the Future Holds for JPMorgan Shares

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Dimon delivers yet another strong quarter.

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JPMorgan Chase (JPM), the first of the big banks to report third-quarter earnings, kicked it off with a bang this morning.

The New York-based bank said its quarterly profit jumped to $3.6 billion, or $0.82 a share, versus $527 million, or $0.09 a share, in the year-ago period.

Analysts had forecast earnings of $0.52 a share, according to Thomson Reuters.

The star of the show for JPMorgan: its investment banking business, which reported net income of $1.9 billion versus $882 million a year ago.

Investors loved it -- shares rocketed up 3.3% in midday trading. The stock has traded between $14.96 and $47.47 over the last 52 weeks and it's now trading at the high end of that range.

JPMorgan has performed better than rivals during this Great Recession, notes Stuart Plesser, equity banking analyst at Standard & Poor's.

"The bank's capital ratios have been higher and they haven't had to dilute shareholders," Plesser tells us. "Also, their charge-off levels, while historically high, are low relative to peers. They underwrote their loans more conservatively."

Much of the credit goes to a very capable corner office, says Plesser. "It's a strong management team. Also, the acquisitions they made, like Washington Mutual, are really starting to play out."

The shares' rally isn't done yet, according to Plesser. He rates it a strong buy with a price target of $56.

But there were words of caution in JPMorgan's report. CEO Jamie Dimon in a statement said that, while his shop sees some initial signs of consumer credit stability, "we are not yet certain that this trend will continue."

Credit costs remain high, with the bank adding $2 billion to its consumer credit reserves, bringing total reserves to $31.5 billion, or 5.3% of total loans.

JPMorgan's loss provision to cover home loan defaults rose to $4 billion while its provision to cover credit card losses increased to $5 billion.

"Everybody wanted to know where the charge-offs were going," says Plesser. "They came in lower than I expected, so there has been some easing on a sequential, quarter-to-quarter basis."

Anton Schutz, portfolio manager of the five-star Burnham Financial Industries Fund (BURFX), who owns the bank, also liked what he saw today.

"The headline beat was a terrific number," Schutz tells Minyanville. "They have built their loan loss reserves to a very high level on an absolute basis. If they no longer add to that reserve, that over-providing they are doing, they actually will have more earnings power."
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No positions in stocks mentioned.
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