JPMorgan Chase & Co.'s third-quarter income fell 4 percent on weaker investment banking and trading results and a loss in its private equity division. The bank also set aside $1 billion for litigation tied to poorly-written mortgage loans and securities.
The New York bank said Thursday it earned $4.26 billion, or $1.02 per share, compared with $4.42 billion, or $1.01, during the same quarter last year. Revenue edged up to $24.37 billion from $24.34 billion last year.
The investment banking declines were caused by extreme volatility in stock and bond markets in the third quarter. Markets started to swing wildly in August after the U.S. government's credit rating was downgraded and worries emerged that a default by Greece could hobble the European banking system.
The wild swings led to a slowdown in debt issuance and a record backlog in IPOs, both sources of banking fees, as companies elected to wait out the turmoil and investors pulled money out of stocks and bonds.
JPMorgan Chase & Co.'s fees from investment banking fell 31 percent to $1 billion in the quarter. Debt underwriting fees fell 37 percent to $496 million as fewer companies raised money by selling debt. With many IPOs also shelved in the quarter, stock underwriting fees fell 47 percent.
The market turmoil also cut the value of JPMorgan's investments. Its private equity business lost $347 million.
Lawsuits against U.S. banks for bad mortgage loans piled up in the third quarter, including a federal suit against 17 banks for selling risky mortgage-backed securities. JP Morgan set aside $1 billion in the quarter to fight such lawsuits.
The results disappointed investors. JPMorgan's stock fell 4 percent, or $1.34, to $31.86 in early trading. Other bank stocks also fell. Morgan Stanley also lost 4 percent, to $15.19, and Citigroup Inc. fell 3.8 percent to $28.09.
JPMorgan Chase & Co., seen as one of the strongest banks on Wall Street, is also the first major U.S. bank to report earnings. Citigroup Inc., Bank of America Corp. and Goldman Sachs Group Inc. report next week.
JPMorgan executives said they were encouraged by the performance of their non-markets related divisions. Business lending increased sharply, an encouraging sign for the U.S. economy. Jamie Dimon, CEO of JPMorgan Chase, said he hoped the lending would lead to hiring at these businesses.
JPMorgan's new loans to small businesses grew 71 percent in the quarter from last year to $12.6 billion, loans to middle-market businesses grew 18 percent to $41.5 billion, while loans to companies related to international trade was up 69 percent to $30.1 billion.
"These are huge numbers. The recovery is still here, folks," Dimon said in a conference call with journalists to discuss earnings.
In another positive sign for the economy, JPMorgan's customers are hurting less. Fewer customers were late paying bills. The bank wrote off $2.7 billion in consumer loans, compared with $4.7 billion in the same quarter last year. The bank also put aside $2.3 billion for losses from consumer credit, which includes mortgage and credit card loans. That's down from $3.2 billion last year.
Retail banking revenue rose 11 percent to $7.5 billion. Credit card sales volume rose 10 percent, reflecting higher consumer spending.
The improvements in consumer and commercial businesses units led to increased hiring. Headcount at the end of the third quarter was 256,663, an increase of 19,853, or 8 percent since last year.