JPMorgan Chase reported that Q3 earnings rose 23%, to $4.4 billion, on revenues of $24.3 billion, as it significantly reduced provisions against loan losses.  But the bank's report card wasn't all "A's."  First, the bank warned that while losses from consumer products like mortgages and credit cards were stable, those numbers could grow if the economy worsened.  Second, JPMorgan’s corporate businesses showed declines in profitability. 

    Investment Bank Profit Crumbles.   Despite maintaining top league table positions by Dealogic’s accounting, the firm’s investment banking earnings fell 33% to $1.3 billion.  Net revenue across its investment-banking business fell 29% to $5.4 billion. The decline was particularly pronounced in fixed-income trading and equity underwriting.  In fact, these numbers were the lowest profit and worst return on equity since the collapse of Lehman Brothers in late 2008. 

In fixed-income markets, the engine room for JPMorgan’s revenue in recent quarters, revenue came in at $3.1 billion, down 12% from Q2, and down 38% from the $5 billion of a year earlier.  Stock underwriting fees were $333 million, half the year-earlier total, as the bank posted the worst quarterly result since the first quarter of 2009.  M&A fees were slightly up on the previous quarter and flat on the same point last year, at $385 million.

The results reflect an industry coming to terms with a future of reduced profitability, poor trading returns, increased capital and more onerous regulation.  As the first large financial institution to report globally, JPMorgan’s results are often taken as a bellwether for the industry.

    JPMorgan Announces Cuts in Pay.   JPMorgan apparently is setting aside less in compensation for its bankers and traders.  The bank disclosed Wednesday that it cut compensation to its investment banking unit by 31% during the 3rd quarter, setting aside just over $2 billion.  For the first 9 months of 2010, JPMorgan has set aside $7.9 billion in compensation expenses for employees of its investment bank, down 10% from $8.8 billion, a year ago. 

A compensation analyst notes that compensation will differ at other financial services firms depending on their business models, adding that asset-management professionals could see modest gains.   [WSJournal, NYT Dealbook, 10/13]