JPMorgan Chase (NYSE: JPM) Earnings: 34% Profit Gain Thanks to this Business

JPMorgan Chase (NYSE: JPM) reported third-quarter earnings today (Friday) of $1.40 a share, beating increased estimates of $1.21 a share.

JPM, the largest U.S. bank by assets, earned a record $5.7 billion in the quarter, 34% higher than the $4.3 billion or $1.02 reported for the same period a year ago. The strong revenue results also easily topped forecasts.

The impressive numbers were thanks to the bank's robust and growing mortgage and credit business. Mortgage volume was up 29%, and core loan growth grew 10%.

The notable uptick in both segments bodes well for the housing market and U.S. economy, suggesting the real estate market is staging a recovery and consumers are getting more comfortable spending.

"Importantly, we believe the housing market has turned the corner," CEO Jamie Dimon said in a statement.

As a result of improved mortgage and credit conditions, JPM reduced its reserves (cushion) for loan losses by $900 million.

"All in, we think it's a good quarter for JP Morgan Chase, and other banks should see some of the same benefits," Glenn Schoor, an analyst at Nomura Securities told the Financial Times.

Here's a closer look into the third quarter.

JPM Earnings: London Whale Trade Still a Big Deal

Still under scrutiny from the dicey derivative bets made in the bank's London Chief Investment Office, the bank's losses from the failed hedge strategy grew in the third quarter by $449 million.

Since the trade, dubbed the London Whale, was uncovered in the second quarter, losses have cost JPM some $6 billion. Under the worst case scenario, the bank said the losses could widen by $1.7 billion.

CEO Dimon said in a conference call that the bank doesn't anticipate further losses of that enormity and added that the bank has appreciatively reduced the scope of risks in the underlying portfolio.

Anxious to put the matter to rest and behind him, Dimon called renewed focus on the losses a "sideshow" in an otherwise stellar quarter.

"Hopefully we're not going to be talking about it anymore," he said in a statement.

QE3 Impact on JPM

Dimon noted the Fed's fresh round of QE3 helped the bank's mortgage business in the third quarter, but said the current record low, near-zero interest rate environment has weighed on some of the bank's other businesses and profits.

"The bottom line isn't related much to QE3 at all," Dimon said.

Confident that QE3 will help the overall economy, Dimon believes the bigger issue and key to economic recovery is resolving the threat of the looming fiscal cliff (tax increases and across the board spending cuts set to kick in on Jan. 2 if Congress fails to act).

Other JPMorgan (NYSE: JPM) Earnings Notes

Overseas Exposure
Despite the mushrooming sovereign debt mess in Europe and mounting worries over the seriously ailing fiscal state of Italy and Spain, Dimon said the bank will continue to do business in both countries and may even look to buy assets in the struggling regions should strategic and favorably priced opportunities arise.

Headcount at the Bank
JPM slashed 3,000 jobs in the third quarter, but its employee headcount is still up 1% for the year. The numbers of jobs cut were from workers in its service mortgage default division.

Headcount could be reduced further in that segment, Dimon warned, as defaults decline.

Lingering Lawsuits
Hanging over the bank is a bevy of lawsuits.

They include those related to LIBOR manipulation, the massive London Whale losses and the mortgage lending practices of Bear Sterns (the defunct brokerage arm JPM bought for a song at a fire sale in 2008).

While Dimon declined to elaborate on any ongoing litigation, he did say he was taken aback by the fresh Bear Sterns suit filed by New York's attorney general since the Bear Stern acquisition was brokered with the U.S. government blessing.

The bank has banked an additional $684 million in reserves for ongoing legal action expenses.

JPM stock was little changed in Friday morning trading. Just before noon, shares traded around $41.57, just over a 1% loss from the previous day's close.

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