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JP Morgan Chase Earnings: Here is What You Need to Know

From New York early Friday, JP Morgan Chase (JPM) announced its quarterly earnings report, and while the report as a whole was mixed, the bank achieved some key highlights that have sent its stock rallying positively in Friday trading. In the first couple hours, JP Morgan was up more than 3.5 percent, north of $35 per share.

JPMorgan Chase & Co (NYSE:JPM)

Inside the numbers, JPM reported net earnings per share at $1.21, which blew away consensus of 7 cents. And while revenue ($22.9 billion) beat estimates by $1 billion, the number was down 16 percent year-over-year.

However, the bank is doing well as a bank, and not so much as an investment bank. On the banking side, JPM reported a 14-percent increase in business loan originations, mortgage originations were up 29 percent and credit-card sales volume was up 12 percent. On the other side of the coin, however, net interest income of $11.5 billion was down 5 percent year-over-year.

On the investment side, however, JPM reported net investment revenue was down nearly 7 percent year-over year, investment banking fees were down 35 percent, advisory fees 41 percent and trading revenue 10 percent. The bank also reported losses from its CIO “accident” could be as high as $9 billion after the dust settles, though CEO Jamie Dimon said most of that trouble has passed by now.

Dimon said, “Importantly, all of our client-driven businesses had solid performance. However, there were several significant items that affected the quarter’s results – some positively; some negatively. These included $4.4 billion of losses on CIO’s synthetic credit portfolio, $1.0 billion of securities gains in CIO and a $545 million gain on a Bear Stearns-related first-loss note, for which the Firm now expects full recovery. The Firm’s results also included $755 million of DVA gains, reflecting adjustments for the widening of the Firm’s credit spreads which, as we have consistently said, do not reflect the underlying operations of the Firm. The Firm also reduced loan loss reserves by $2.1 billion, mostly for the mortgage and credit card portfolios. These reductions in reserves are based on the same methodologies we have used in the past – the good news is that these reductions reflected meaningful improvements in delinquencies and estimated losses in these portfolios. We continue to maintain strong reserves. Since the end of the first quarter, we have significantly reduced the total synthetic credit risk in CIO – whether measured by notional amounts, stress testing or other statistical methods. The reduction in risk has brought the portfolio to a scale that allowed us to transfer substantially all remaining synthetic credit positions to the Investment Bank*. The Investment Bank has the expertise, capacity, trading platforms and market franchise to effectively manage these positions and maximize economic value going forward. As a result of the transfer, the Investment Bank’s Value-at-Risk and Risk Weighted Assets will increase, but we believe they will come down over time. Importantly, we have put most of this problem behind us and we can now focus our full energy on what we do best – serving our clients and communities around the world.”

Louis Bacon of Moore Global Investments might be feeling good about his increased position in JPM, as would John Griffin of Blue Ridge Capital. During Q1 of 2012, Moore increased its shareholding in JPM by more than 1,300 percent to $297 million, while Blue Ridge upped its state by 43 percent to $282 million. Paul Ruddock and Steve Heinz of Landsdowne Partners still hold the largest stake at $805 million at the end of March, though Landsdowne sold off 27 percent of its shares at that time.

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