Broadbased Recovery Lifts JPMorgan’s Earnings Across Its Divisions

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JPMorgan Chase (NYSE:JPM) announced its performance figures for last quarter and full year 2012 this Wednesday, and the record performance by the country’s largest bank can be summarized aptly as ‘prosperity in diversity.’ [1] The banking group which boasts of a leading position in all forms of banking – retail, commercial, investment and even custody – reaped the benefits of this diversification as improving economic conditions helped top-line figures across the board. The result – JPMorgan almost breached the $100-billion revenue figure on its way to a record $21.3 billion in earnings for the year. And this was despite the ‘London whale’ loss incurred by the bank (a $6.2 billion loss in the first nine months of 2012 on derivatives bets by a U.K. trader).

A dream run for the bank’s mortgage division, an increase in card use by its customers and a notable boost in the global demand for debt underwriting services are some of the key factors that played a big part in JPMorgan’s reported figures. And while net interest margins for the bank are also under pressure, the bank looks better off in this area compared to competitor Wells Fargo (NYSE:WFC) where the margin compression has been quite large (see Wells Fargo’s Interest Margin Concerns Overshadow Record Results).

We have marginally increased our price estimate for JPMorgan’s shares from $46 to $48, primarily to capture the better-than-expected increase in the bank’s deposits base as well as the sharp rise in commercial lending along with corresponding margin improvements. The new estimate is slightly ahead of the current market price.

See our full analysis of JPMorgan

Solid Growth For Mortgage Business Over The Year

JPMorgan originated mortgages worth $180.8 billion in 2012 – a good 24% increase from $145.6 billion in mortgages originated in 2011. While this is about a third of $524 billion in mortgages originated by Wells Fargo for the year, JPMorgan maintains its position as the second largest mortgage provider in the country even as competitors Citigroup (NYSE:C) and Bank of America (NYSE:BAC) have cut down on their mortgage operations and U.S. Bancorp (NYSE:USB) is quickly gaining more ground.

It must be mentioned here that JPMorgan’s mortgage banking revenues got a leg-up as net provisions for the division were negative in 2012, i.e. JPMorgan released some of the provisions it had accumulated since the global economic downturn of 2008 in view of the improving mortgage industry. The chart below represents the provisions as a percentage of outstanding mortgages.

Credit Card Fees Also Saw A High From Record Usage By Customers

JPMorgan reported that its customers swiped credit cards issued by it to make purchases of $381 billion this year – a record for the division. This marks a full recovery for the bank since 2008 as credit card usage slumped from $369 billion that year to $294 billion in 2009 in the wake of the economic downturn. This is also great news for the banking industry which is trying to make up for billions in lost revenues from stricter regulations governing card fees that have been implemented over the recent years.

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Notes:
  1. Q4 & FY 2012 Earnings, JPMorgan Press Releases, Jan 16 2013 []
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