JPMorgan Chase & Co. reported higher-than-expected quarterly earnings, helped by narrowing losses on bad loans that allowed it to release $2-billion of reserves.
The results show that JPMorgan, the first of the major U.S. banks to report, is benefiting from economic recovery but has not yet shaken off the residual costs of the financial crisis.
JPMorgan's mortgage business in particular is still struggling amid rising litigation and still sluggish home buying interest. The bank, the second-largest U.S. financial institution, set aside another $1.5-billion to cover legal settlements linked to U.S. mortgages.
JPMorgan shares fell 7 cents to $44.38 in pre-market trading and analysts said the results could indicate headwinds for the other banks reporting next week.
The largest U.S. bank, Bank of America Corp, reports on Friday, while Citigroup, the third largest, reports on Tuesday. Goldman Sachs Group reports on Wednesday.
"JPMorgan and Goldman stand on their own," said David Morrison, market strategist at GFT Global Markets in London. "It doesn't necessarily mean that we are going to see good results from the others, even the top six U.S. banks," he added.
JPMorgan said profit increased to $4.8-billion, or $1.12 a share, from $3.3-billion, or 74 cents a share, a year earlier. Analysts on average expected $1 a share, according to Thomson Reuters I/B/E/S.
"Although we continue to face challenges, there are signs of stability and growth returning to both the global capital markets and the U.S. economy," said chief executive officer Jamie Dimon.
Fewer bad loans meant the bank could reduce loan-loss reserves for its credit card unit by $2-billion, or 30 cents a share after tax.
"The loan-loss reserves are something that bugs me," said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor. "I would love to see a bank hit their numbers without taking from loan-loss reserves for once," he added.
The bank benefited from a turnaround in its retail banking unit, which reported a profit of $708-million compared with a loss of $399-million in the year-earlier quarter.
Still, JPMorgan had to put aside $1.5-billion of additional litigation reserves related to soured mortgages it sold to investors. Its compensation expense for the full year increased about 4 per cent from 2009, but the payout per investment bank employee dropped 2.7 per cent to $369,651. In the investment bank, revenue increased from the year earlier, but profit fell to 21 per cent to $1.5-billion as the bank added to litigation reserves.
Revenue increased 6 per cent to $26.7-billion.