JPMorgan Reports Record Income On Mortgage Strength

Unfazed by all the legal and regulatory turmoil it has been going through in the recent past, JPMorgan Chase (NYSE:JPM) reported record quarterly earnings figure for Q3 2012 early Friday morning. ^[1] The largest U.S. bank in terms of assets churned out nearly $26 billion in revenues from its diversified business model – translating into its highest ever quarterly income of $5.7 billion. The revenue growth largely came from strong mortgage productions over the quarter besides decent growth in the bank’s commercial banking and asset management business.

We have marginally increased our price estimate for JPMorgan’s shares from $45 to $46, to capture the improvement in the bank’s mortgage business. The estimate is about 10% ahead of current market prices.

See our full analysis of JPMorgan

Government Measures Reflect In Strong Mortgage Revenues

JPMorgan reported total mortgage production revenues of $1.8 billion for the quarter – 14% higher than the $1.6 billion figure for Q2 2012 and more than a third higher that the $1.3 figure a year ago. The bank originated more than $47 billion in mortgages this quarter – a good portion of the about $73 billion in mortgage applications it received over the period. Application volumes clearly received a leg-up this time around from low interest rates and the government-backed Home Affordable Refinance Programs (HARP) programs which drove home-owners to refinance their existing mortgages.

JPMorgan CEO Jamie Dimon summed up the improving mortgage scenario on the bank’s Q3 earnings call with his statement: “the housing market has turned the corner.”

And The CIO’s Loss-Making Strategy Has Been Laid To Rest

As a part of its earnings supplement, JPMorgan clarifies the status on the complex strategy entered into by its London-based Chief Investment Office, which resulted in losses of $5.8 billion over the last two quarters. The bank had earlier announced that the strategy may result in additional losses between $1 and $1.5 billion over the second half of the year.

But JPMorgan did well to close out the loss-making derivative positions in this quarter – capping losses at $449 million in Q3. The hedging strategy that went wrong ended up with losses of $6.2 billion in total. And is now a thing of the past – besides, of course, the ongoing investigations into it by regulatory bodies.

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1. 3Q12 Earnings Press Release, JPMorgan Investor Relations, Oct 12 2012 [↩]