Good performance from JP Morgan's credit card and investment banking divisions offset continuing losses in housing market
A bounce-back in its credit card and investment banking business has helped JP Morgan Chase beat analysts' forecasts and reap $3.3bn (£2bn) in compensation for its investment bank employees, up 13% from $2.9 billion a year earlier and the highest payout in two years.
JP Morgan announced first-quarter earnings of $5.6bn, a 67% rise compared with $3.3bn in the equivalent period of 2010. But revenues fell 8% to $25.8bn from $28.2bn for the equivalent quarter a year ago, dragged down in part by continuing problems in the housing market.
Jamie Dimon, chairman and chief executive officer, said that "extraordinarily high losses" had been running at $4bn a year in home lending. "Rest assured, we are fully engaged in fixing our problems and addressing our mistakes from the past," he said.
Doug Braunstein, chief financial officer, said the bank expected increased costs following a change in regulations and a pending agreement with banking regulators.
The bank's housing problems were offset by good returns on credit cards. JP Morgan's card services division reported a $1.3bn profit on $3.98bn in revenue, compared with a $303m loss on sales of $4.4bn a year ago. The bank reported a $2bn pre-tax benefit from reduced credit card loan loss reserves.
Investment banking fees rose 23%, with JP Morgan involved in dozens of deals, including the proposed $39bn takeover of T-Mobile USA by AT&T.
Dimon announced that, after approval from regulators, he would increase the bank's annual dividend to $1 per share, from $0.20, and launch a $15bn share purchase programme, spending $8bn this year.
"We will only buy back stock if we believe the price is appropriate," he said. "In the meantime, we will pursue the significant organic growth opportunities we see in each of our businesses."
JP Morgan is the first of the big US banks to report first quarter figures. Dimon said the firm's results reflected "a strong quarter across the investment bank and solid performance from card services, commercial banking, Treasury and securities services, and asset management." He said that these results "partially benefited from improved credit trends in our credit card and wholesale businesses".
The bank still faces a battery of legal claims stemming from the mortgage crisis. JP Morgan is also under investigation for questionable foreclosure practices on US homeowners. JP Morgan put aside $650m in the first quarter to cover potential legal claims, after increasing its litigation reserves by more than $6.7bn in 2010.
On a conference call bank executives said they expected regulators to imminently announce new rules about how bank's should deal with struggling homeowners. Dimon said "rotting" homes awaiting foreclosures were harming the whole housing market and a "good global settlement" would be good for everybody. "We are adding a lot of intensive manpower and talent to fix the problems of the past," Dimon said. The bank intends to add between 2,000 and 3,000 new employees to comply with new regulatory demands.