JPMorgan Chase & Co's quarterly earnings fell 4 percent as the European debt crisis pushed investment banking clients to the sidelines, but results were helped by an accounting gain the bank can take when markets are in turmoil.
Excluding the accounting adjustment, JPMorgan's third-quarter profit dropped 25 percent. Shares of the second-biggest U.S. bank fell 3 percent to $32.18 in early trading Thursday.
The results, the first from a major U.S. bank for the quarter, underscore how market turmoil has clobbered investment bank revenue. With stock markets plunging, companies are more reluctant to issue securities or acquire rivals.
JPMorgan Chief Executive Jamie Dimon said the company is cutting 1,000 jobs in its investment bank. Banks globally are laying off staff in the wake of weak stock and corporate credit markets.
Nancy Bush, a bank analyst and contributing editor at SNL Financial, said, "The underlying trends are quite subdued for JPMorgan, and I don't see any reason to think they'd be different for Goldman or Morgan Stanley."
The bank did post 1 percent loan growth, which Dimon said was a positive for the economy. The bank spent more buying back shares than it earned during the quarter.
JPMorgan posted quarterly earnings of $4.3 billion, or $1.02 per share, down from $4.4 billion, or $1.01 per share, in the same quarter last year.
The results were muddied by adjustments for the market value of the bank's debt, which gave it a $1.9 billion pre-tax gain. When the bank's debt weakens relative to U.S. Treasuries, it can record an accounting gain.
Wall Street analysts had estimated on average that the bank earned 91 cents a share. It was not clear if the bank's results were comparable with that estimate.
Despite the weak environment in investment banking, JPMorgan bought back $4.4 billion of stock during the quarter, and its diluted outstanding shares fell about 3 percent.
"We have a tremendous amount of capital," Dimon said in a conference call with reporters after the results came out.
"They are putting their money where their mouth is" with the buybacks, said David Dietze, chief investment strategist at Point View Wealth Management in Summit, New Jersey.
"It shows a degree of confidence. They don't see a cash crunch. The takeaway here is to be more optimistic about regional bank results but not be jumping up and down about the prospects of Morgan Stanley and Goldman Sachs."
Morgan Stanley and Goldman Sachs Group Inc are due to report third-quarter results next week.
FALLING FEES
JPMorgan's investment banking fees were down 31 percent from a year earlier to $1 billion. Revenue from stock and bond trading was down 14 percent, not counting the accounting gain.
The report from JPMorgan comes as the industry struggles to hold onto recent profits after losing tens of billions of dollars in the financial crisis.
Overall, financial company earnings in the third quarter are expected to be up only about 1 percent from a year earlier, to $33 billion, according to Thomson Reuters I/B/E/S surveys of analysts covering banking stocks in the S&P 500 index. Five years ago the industry's quarterly earnings were more than 50 percent higher, according to Thomson Reuters Proprietary Research.
Shares of JPMorgan have fallen with other bank stocks, losing 22 percent their value this year through Wednesday, compared with a 3.5 percent drop in the Standard & Poor's 500 index.
Results from JPMorgan, which never reported a quarterly loss during the financial crisis, are closely watched by investors and bank executives for clues to the results other banks.
In eight of the last 11 quarters, banking sector stocks moved in the same direction as JPMorgan shares for several days after the bank posted its results, Gerard Cassidy, analyst at RBC Capital Markets, said earlier this week.
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