Thursday, October 18, 2007

JP Morgan's Results Put More Heat On Citigroup's Prince

I thought this was the quarter all the banks suffered? It looks like it might be just Chuck Prince's Citi (C).

On Tuesday, the historically conservative Wells Fargo (WFC) reported a 4% increase in earnings amid the tumultuous environment of the past two months. Eyebrows were raised among Citi shareholders given the 57% drop they experienced the day before. Those raised eyebrows have now turned into churning stomach acid after the results at JP Morgan (JPM) this morning. It is beginning to look like the quarter may not have been that tough for all the banks, just Citi.

JP Morgan actually posted a 2.3% increase in third-quarter net income despite $1.3 billion in write downs on loans and increasing credit loss provisions as the company's asset management business had record results. Net income was $3.37 billion, or 97 cents a share, compared with $3.3 billion, or 92 cents a share, last year. Revenue increased 3.6% to $16.11 billion. Analysts estimates were for earnings of a 90 cents share on revenue of $16.6 billion. Total credit loss provisions jumped 67% to $2.36 billion.

CEO Jamie Dimon said, "Our firm performed well overall in the third quarter, despite challenging credit and market conditions. We remain cautious about the future economic environment, but will continue to make investments based upon the long-term outlook for market and client volumes. Our focus will be on investments in areas across our franchise, including the Investment Bank and the retail mortgage business, where we can wisely utilize our balance sheet to better serve our clients and gain market share in the process. I believe our firm is well positioned for the future."

Unlike Citigroup, Morgan's Tier 1 capital ratio remained at 8.4%.

Bank of America (BAC) reports today and if the results are along the lines of Wells Fargo and Morgan, expect the "oust Prince" chorus to grow very loud very quickly as it will have appeared to be the only major bank not to have been able navigate the choppy waters. It is beginning to look more and more as these results come out that either Citi is just too large and cumbersome to manage, or, the team in place now is just not able to manage what is there. Either way, something needs to change.

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