JPMorgan Chase (JPM) kicked off the first-quarter earnings season by announcing record profits, but the results did little to inspire investor confidence in bank earnings or diminish ongoing scrutiny of the bank's business and corporate structure.
First-quarter profit rose to a record high of $6.5 billion, but loan demand weakened and total revenue fell 3.6% from a year earlier both discouraging signs for other banks as they prepare to report their quarterly results.
While solid, the earnings were less than the blowout results that might have taken some pressure off Chairman and Chief Executive Jamie Dimon, who has spent a year trying to shake off the London Whale trading loss and now is facing mounting shareholder pressure to drop his chairman's title.
"There really wasn't anything that was glowing to me," says Albion Financial analyst Jason Ware.
Ware added, though, that he did not expect the results to hurt Dimon.
"It's certainly a nice card to have to be able to say, 'The bank's doing incredibly well under my leadership.' They just need some top-line growth that's really key for the bank and for all the banks going forward."
Dimon on Friday resolutely refused to discuss the looming shareholder vote about his joint title. And his bank's results may be more troubling for its competitors. JPMorgan and Wells Fargo (WFC) on Friday were the first banks to unveil their first-quarter earnings, and both saw revenues fall as consumer loan demand dipped. Total loans at JPMorgan were up 1.1% year-over-year, to $728.9 billion, but down almost 1% from the previous quarter. That bodes poorly for other banks, starting with Citigroup (NYSE:C), which reports results on Monday.
"It's probably one concern and it's well-expected throughout the industry that first-quarter loan growth may be weaker than in the fourth quarter," says Erik Oja, an analyst at S&P Capital IQ.
Chief Financial Officer Marianne Lake told analysts during a conference call that, with the overall economy still sluggish, the bank is seeing more customers tapping their deposit accounts instead of borrowing more.
"We saw declines in deposits," she said. "They're using their cash. They're waiting it out."
She also cited "year-end issues that people were concerned about," in an apparent reference to the fiscal- cliff impasse, but said that such macroeconomic uncertainty had "slightly less of an impact" than mounting industry competition over pricing for loans. "There are deals being done with terms and conditions and pricing that we're not comfortable with at the moment," she said.
JPMorgan shares were down slightly midday Friday.
The bank propped up its profit numbers in part by releasing $1.2 billion in loan-loss reserves for mortgages and credit cards. Dimon, who has previously criticized banks that bolstered profits by such releases, told reporters in a conference call that he was committed to remaining "conservative" about them. But analysts pointed out that the releases comprised a larger part of JPMorgan's profit than they have in previous quarters.
"It's not something to be alarmed over, but we want to keep an eye on it," Oja says.
The usually outspoken Dimon was relatively subdued on two conference calls with reporters and analysts on Friday morning, showing exasperation with repeated questions about his future title at the company and telling reporters that those decisions were "a private matter" for the board.
JPMorgan Chase's board has said it supports Dimon's retention of both titles, and directors havereportedly been reaching out to big investor groups to shore up support for that decision ahead of the bank's annual shareholder meeting in May.
"You should always listen to your shareholders," Dimon said on a call with reporters. "Our board will take it up in due course. Our annual meeting is not until May, so they've got plenty of time."
In a recent shareholder letter, Dimon also warned that the bank has "received regulatory orders requiring improved performance in multiple areas, including mortgage foreclosures, anti-money laundering procedures and others. Unfortunately, we expect we will have more of these in the coming months."
Dimon promised in the letter and on the calls Friday that JPMorgan would do everything necessary to improve its operations and comply with the regulatory orders. But he also showed some flashes of his usual frustration with the new regulations facing the banking industry and the renewed debate over breaking up the big banks.
"I hope at one point we declare a victory and just stop eating our young," he told analysts.
The bank's net income rose 33% year-over-year to $6.53 billion, or $1.59 cents per share. Analysts had projected $1.39 per share, according to Bloomberg.
JPMorgan's core banking business slowed. Total net revenue in the consumer and community banking division fell 6.1% from a year earlier, to $11.6 billion. Total net revenue in the commercial banking division edged up about 1%, to $1.7 billion, from a year earlier.
Profits were also helped by broad cost-cutting. Total headcount fell 1.1% to 255,898, from the previous quarter. It declined 2% from a year ago. Lake said Chase is "on track" to deliver the cost cuts that it had disclosed in February. During a February meeting with executives to discuss its growth strategies, Chase said it planned to cut a net 17,000 jobs over the next two years.
"Headcount in the consumer bank and mortgage business was down over 3,000 heads this quarter," Lake said during the call. It was "a function of the evolution in the branch operating mode."