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JPMorgan: 'Whale' Loss Winner

Written by: Philip van Doorn 07/13/12 - 12:14 PM EDT
Tickers in this article: JPM C BAC WFC I:BKX

Updated with market close information.

NEW YORK (TheStreet) -- JPMorgan Chase (JPM) was the winner among the largest U.S. financial names on Friday, with shares rising 6% to close at $36.07.

The Dow Jones Industrial Average rose over 200 points, after JPMorgan reported a second-quarter profit of $5 billion, or $1.21 a share, soundly beating the consensus estimate of a 72-cent profit, among analysts polled by Thomson Reuters.

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The KBW Bank Index (I:BKX) rose over 3% to close at 45.91, with all 24 index showing gains of at least 2%.

JPMorgan CEO James Dimon had in May estimated that the second-quarter hedge trading loss by its Chief investment Office (CIO) estimated at would be "slightly more than $2 billion." The trading losses for the second quarter in fact totaled $4.4 billion, and the company also said it would restate its first-quarter earnings by $459 million, but investors cheered several positive developments:

  • Mortgage revenue increased to $2.3 billion during the second quarter, from $2.0 billion during the first quarter, and $1.1 billion in the second quarter of 2011.
  • Total noninterest expense declined to $15.0 billion in the second quarter, from $18.3 billion the previous quarter, and $16.8 billion a year earlier, mainly reflecting a decline in litigation expenses, but also a reduction in compensation expenses to $7.4 billion, from $8.6 billion in the first quarter (the annual seasonal spike for bonuses), and $7.6 billion in the second quarter of 2011.
  • Period-end commercial banking loans grew to $120.5 billion as of June 30, from $115.8 billion the previous quarter, and $102.7 billion a year earlier.

The second-quarter bottom line was boosted by a $2.1 billion release of loan loss reserves, representing 33 cents a share, after tax, and $0.8 billion, or 12 cents a share, after tax, in debit valuation adjustments (DVA).

Dimon said during JPMorgan Chase's earnings conference call that "we've significantly reduced the total synthetic credit risk in CIO," and that "hopefully, if all goes well, we can start buying back stock early in the fourth quarter," resuming the share buyback program that was suspended in May after the CIO hedge trading losses were first disclosed.