JPMorgan's profit proves that Wall Street's titans still rule

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Just a year ago, Wall Street's survival seemed far from assured. Titans of finance like Merrill Lynch and Lehman Brothers had disappeared, and even the strongest of those left standing, including JPMorgan Chase (JPM) and Goldman Sachs (GS), took billions of dollars in government assistance to bolster their balance sheets. The era of wild -- and lucrative -- financial risk-taking was supposed to be over.

The Wall Street Journal even dubbed the final days before Lehman's collapse "the weekend that Wall Street died." Now, of course, it seems that rumors of its demise have been greatly exaggerated -- and the proof is in the profits. JPMorgan's $3.6 billion in net income last quarter, powered by investment banking revenue that rose 85 percent from a year ago, shows that the biggest banks can still make tons of money.
How much money? JPMorgan raked in $28.8 billion in revenue from July to September, the second consecutive quarter it posted record income. That helped it beat analysts' profit estimates by a whopping 31 cents a share. Last quarter it beat expectations by "just" 13 cents.

JPMorgan made more money underwriting debt and equity issues, but the real boost came from its fixed-income trading operation. All told, investment banking revenue fell short of the record levels it reached earlier this year, but it's still the biggest factor pushing profits at the company higher.

If there's one dark cloud, it's hanging over JPMorgan's credit-card business. With a $700 million loss, it was the only segment that didn't turn a profit last quarter.

CEO Jamie Dimon realizes that's a problem. "We know we will lose a lot of money next year on cards, and it could be north of a billion dollars the first and second quarter," he said on a conference call with analysts Wednesday morning. "That number will probably only start coming down as you see unemployment and charge-offs come down."

To guard against such losses, Dimon's company set aside an additional $2 billion, bringing the total value of JPMorgan's credit reserves to $31.5 billion.

But even here, the news isn't as bad as it might seem because JPMorgan is relying less on the card business these days. It accounted for about a quarter of revenues last year, but in 2009's third quarter, credit cards made up just under 18 percent. That they're less important to JP Morgan's bottom line could insulate it as consumers faced with high unemployment and falling home prices save more and borrow (and pay back) less. Clearly, JPMorgan was was wounded a year ago, but the injuries weren't nearly fatal.
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