JP Morgan and Wells Fargo profits tumble in Q3

Battered by further losses in their mortgage-related positions, JP Morgan and Wells Fargo saw third-quarter profit declines of 84% and 25% respectively today.

JP Morgan’s third quarter profits declined 84% to $527 million, including estimated losses of $640 million related to the takeover of Washington Mutual. The bank made $3.4 billion profit in the third quarter of 2007.

It traced the fall to losses on its mortgage and leveraged loan portfolios. The bank reported $2.6 billion net markdowns on mortgage-related exposures, and a further $1 billion on leveraged loans.

JP Morgan acquired WaMu’s banking operations for $1.9 billion from the Federal Deposit Insurance Corporation (FDIC) on September 25; it reported a one-off $581 million gain associated with the takeover, but also a $2 billion charge related to taking on WaMu's loan book.

“Given the uncertainty in the capital markets, housing sector and economy overall, it is reasonable to expect reduced earnings for our firm over the next few quarters,” commented chief executive Jamie Dimon.

Wells Fargo’s third quarter profits slumped to $1.64 billion, down 25% relative to last year, as the bank took $646 million in losses on its investments in Fannie Mae, Freddie Mac and Lehman Brothers. The bank also bolstered its credit loss reserves by an additional $500 million, which brings its total allowance for credit losses to $8.0 billion, up from $4.0 billion one year ago.

However, the bank said its core deposits rose $23.7 billion, or 30%, from the previous quarter. Chief Financial Officer Howard Atkins said that this reflected “a significant flight to quality”, adding that bank loan activity at Wells Fargo has generally remained robust despite the credit crisis.

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