Big Bank Stocks: Financial Losers
While the broad indexes ended mixed, the KBW Bank Index (I:BKX) was down 2.5% to close at 50.00, with all 24 index components closing out the week with declines.
Earnings increased from $5.0 billion, or $1.21 a share, during the second quarter, when the company booked a $4.4 billion trading loss, from the hedging activity of its Chief Investment Office (CIO), and $4.3 billion, or $1.02 a share, during the third quarter of 2011.
The company's top-line net revenue figure was $25.1 billion was also a convincing beat of the consensus estimate of $24.5 billion.
The third-quarter results were padded by a $967 million reserve release, compared with a $2.1 billion release during the second quarter -- quite timely, considering the CIO losses -- and a release of only $170 million during the third quarter of 2011.
JPMorgan Chase's nonaccrual loans increased to 1.57% of total loans as of Sept. 30, from 1.38% the previous quarter, while third-quarter net charge-offs -- loan losses less recoveries -- totaled $2.8 billion during the third quarter, or an annualized 1.53% of average retained loans. The net charge-off ratio increased from 1.27% the previous quarter, and 1.44% a year earlier, but reserve coverage was very much "ahead of the pace" of charge-offs, covering 2.61% of total loans as of Sept. 30.
CFO Douglas Braunstein explained during the company's earnings call with analysts that loan losses and nonaccrual loans both increased because of regulatory guidance requiring that loans whose borrowers had gone through Chapter 7 bankruptcy and were in early stages of delinquency, with payments less than 60 days late, "be written down to collateral value."
JPMorgan's estimated Basel III Tier 1 capital ratio increased to a strong 8.4% as of Sept. 30, increasing from 7.9% the previous quarter. After saying in September that the company was hoping to restart its share buybacks in the first quarter of 2013, CEO James Dimon said during the company's earnings call with reporters that resuming buybacks that quickly would be "immaterial," since only $3 billion in shares would be repurchased.
Stifel Nicolaus analyst Christopher Mutascio -- who rates JPMorgan a "Hold," estimated that JPMorgan's core operating EPS was "closer to $1.34," when factoring out one-time items. The analyst's third-quarter operating estimate for JPMorgan was $1.38, but excluding "the securities gains embedded in our estimate, our core EPS estimate would have been $1.15," he said," which would be "a better apples-to-apples comparison to the core EPS of $1.34 the company reported in 3Q12," making JPMorgan's operating earnings beat even more solid.