JPMorgan's Stellar Results Show Strength of Broad Portfolio

JPMorgan Chase (JPM) demonstrated why it's one of the strongest banks in the country today, reporting earnings of 74 cents a share, handily beating Wall Street expectations of 64 cents a share. With its broad portfolio, the bank was able to make big strides in the better performing parts of the financial economy, which helped offset weaknesses in several other areas.

JPMorgan reported first-quarter 2010 net income of $3.3 billion, up 55% from the first quarter of 2009, and revenue of $27.6 billion, up 11% from the same period last year.

Its overall investment banking revenue of $8.3 billion was down slightly from last year's $8.4 billion, JP Morgan's fixed-income trading desks pulled ahead with a stellar performance bringing in $5.5 billion, up from $4.9 billion last year.

An Improving Picture

CEO Jamie Dimon indicated that he is seeing signs of improvement in the economy despite setbacks. "While the economy still faces challenges, there have been clear and broad-based improvements in underlying trends. We believe these improvements will continue and are hopeful they will gather momentum, resulting in a strong recovery," he said.

However, the bank's real estate portfolio continues to be a drag. Loan losses accelerated at all levels, while new business fell. Mortgage loans both in the high end and lower end performed poorly. The bank wrote off $459 million prime mortgage loans, compared with $312 million last year, while subprime mortgage charge-offs also increased to $457 million, up from $364 million in the prior year. Still, as Dimon noted, delinquencies were starting to stabilize, which could lead to lower charge offs in the future.

The losses aren't going to be quickly offset by newer loans either -- its mortgage loan originations totaled $31.7 billion, down 16% from the prior year and 9% from the prior quarter. And its new home equity loans totaled $302 million, down 67% from the prior year and 25% from the prior quarter.

Even so, these lower loan volumes are roughly in line with expectations. Oppenheimer's banking analyst Chris Kotowski noted in a report that "loan volumes were shrinking at a 7.8% year-over-year rate in late March."

More Business in Small Business

At the same time, some other areas were starting to perk up. For instance, the bank is starting to build up its auto loans business, where originations were up 13% to $6.3 billion. JPMorgan also plans to increase small-business lending to $10 billion in 2010. Dimon said: "During the quarter, we extended more than $2.1 billion in new small-business credit, with business banking originations nearly doubling from last year."

Clearly, if the economy picks up, auto sales improve and small businesses also start borrowing, JP Morgan could be poised for even more profits this year, especially as loan losses start winding down in other areas.