JP Morgan turns up profit

THOMAS HAMED // THE INCUBATOR

Good news for everyone out there — the financial sector is not shooting itself anymore. JP Morgan Chase, a large, multinational bank, announced first quarter profits of $3.3 billion, up 55 percent from a year earlier. If you are an investor, than surely you must be elated. Trading under the ticker symbol JPM, the bank opened today at 47.40, an increase of nearly 56 percent from a year earlier. If you are an Obamaniac, this is a sign that Obama’s policies are working. Banks, flush with money, are lending more to small businesses, homebuyers and other investors. Surely, the good times are back, right?

Sort of. JP Morgan Chase is a retail bank, the type that accepts savings and gives loans. But JP Morgan Chase also owns other businesses, such as a credit card provider, an investment bank (a bank that helps businesses sell shares on the stock market) and an asset management firm for pension funds, wealthy individuals and the like. Profits are not spread evenly among their core four businesses. 74 percent of JP Morgan’s profit came from its investment bank, where revenue grew 69 percent from the last quarter. These numbers suggest companies are preparing to make investments, but it may be a while before they trickle to consumers.

How are JP Morgan Chase’s retail and commercial banks doing? They are profitable — after starting from a low base. Like other banks, bad mortgages flooded JP Morgan Chase’s business. These mortgages, once worth trillions of dollars, became worthless after borrowers could not repay their debts. Under the Troubled Asset Relief Program, the government bought many of these bad debts, but banks still had no choice but to hold many.

JP Morgan Chase just finished cleansing itself of these bad debts. As Chief Financial Officer Michael Cavanagh told the Wall Street Journal, “What we are seeing is some leveling out of delinquencies.” In other words, more people are repaying their debts, and their retail business is stabilizing.

But JP Morgan Chase is not adding to lending reserves — yet. The bank has added to its reserves for mortgage loans, but has added nothing to its credit cards and investment banking.