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Through gritted teeth

13 October 2011 By Antony Currie

JPMorgan started the banking sector’s third-quarter earnings season with a thud. Chief Executive Jamie Dimon was confronted by a triple whammy of falling revenue, lower releases from loan loss reserves and fallout from his own increasingly incendiary comments on regulation. But Dimon still managed to put on a brave face.

He did have some decent material. JPMorgan has extended $12.6 billion of credit to small businesses this year, up significantly from the same period in 2010. Loans to middle-market firms grew 18 percent. And Dimon’s latest comments seem tailored to mollify critics of his rabble-rousing by outlining the benefits of banking to the U.S. economy.

A case in point was JPMorgan’s hiring of 13,000 people this year. The 2,200 veterans among them also proved a reasonable riposte to the lambasting suffered by the bank for foreclosing on homes owned by military personnel posted overseas.

Dimon also saw fit to note the retail bank earned more money from debit card fees – because people like the convenience of using them. The thinly veiled dig at the Durbin Amendment sets the stage for Dimon to start spouting data showing how the rule that capped swipe fees has crimped debit card usage – as banks start charging retail customers for them, of course.

He even lauded the investment bank’s compensation ratio of 29 percent – lower than at most news publishers, as he was keen to impart (including Thomson Reuters, parent company of Breakingviews). But since journalists won’t be bailed out by taxpayers, it’s hardly a suitable comparison. What’s more, after stripping out the net $1.2 billion accounting gain from marking its own liabilities and those of its counterparties to market, JPMorgan actually earmarked 36 percent of its sharply lower revenue for dealmakers.

The bank’s lending data at least implies a middling economy instead of a reeling one. But the decline in pre-tax, pre-provision earnings from the second quarter bodes poorly for rival banks with big capital markets operations. And the slowing pace of releasing loan loss reserves means commercial banks may find it harder to hit their numbers.

Dimon did his best to accentuate the positive. With a return on equity of just 7 percent after allowing for accounting gains, however, it’s no surprise shareholders were not reassured.

 

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