JP Morgan And Goldman Sachs Have Fantastic First Quarter Results, But How Long Will They Last?

JP Morgan have released their first quarter results, and like Goldman Sachs’ earlier in the week, it looks at first glance like they’re immune to the recession.

JP Morgan’s investment banking unit took record – record! – revenues of $8.3bn, generating a profit of $1.6bn. Retail banking also profited to the tune of $474m; their overall profit was $2.1bn, down from last year but still beating estimates. With Lehman Brothers and Bear Stearns gone, they’re benefitting from less competition and fees in the investment banking market; with the takeover of Washington Mutual, they’re picking up gains on the retail side. Thanks to the collapse of mortgage lenders, JP Morgan has been refinancing mortgages to, what we now see, great success; a leaner market has clearly just meant more opportunities for institutions not seriously weakened by toxic assets on their books (something that Wells Fargo has benefitted from too). Couple all that with low interest rates, and the conditions are perfect for such massive gains despite the climate.

That all said, the expectation is that ongoing unemployment will increase those bad assets even at healthy places like JP; they’re setting aside nearly $4bn in reserves to absorb potential losses from such assets. Its credit card business lost $547m thanks to defaults on payments.

CEO Jamie “We Suck Less” Dimon wants to pay off TARP funds as soon as possible, saying it was in “the interest of the United States”, and boldly stated that they had “sufficient capital” to do so. Unlike Goldman, who did a quick issue of shares this week to get together the cash to disentangle themselves from the US government. That didn’t go fully according to plan though, with their share price dropping as investors presumably reacted badly to the dilution of potential dividends, and perhaps don’t forsee these kinds of results repeating themselves over the next few quarters. Or maybe they saw that Goldman’s fortunes are still very much in flux – they still managed to lose $13bn in December alone. Barclays’ chairman Bob Diamond was chuffed to bits with the results, saying they weren’t just a one-off – but is this just to act as a fillip to his own bank’s share price?

This last quarter was warm and fertile for healthy investment banks – let’s see how their newfound assets cope over the long cold months or years still left in this recession.

Posted by Ben Beaumont-Thomas in Hot Money | April 16, 2009 2:11PM |