JPMorgan Chase & Co posted a record quarterly profit on Friday as falling interest rates and a recovering housing market brought big increases in mortgage lending.
The mortgage market, long a drag on bank results, is starting to lift lenders' earnings again, and JPMorgan Chief Executive Jamie Dimon said he was hopeful about the outlook for U.S. residential real estate.
"We believe the housing market has turned the corner," Dimon said in a statement.
JPMorgan suffered only modest losses in the latest quarter from the "London whale" trades that brought it $5.8 billion of losses in the first half of the year, signaling that it is moving on after the scandal.
The improving housing market brought the bank a 36 percent increase in mortgage lending revenue in the third quarter.
Analysts expect mortgage lending volume to continue to rise after the Federal Reserve said in September that it would buy up to $40 billion of mortgage bonds every month until the labor market improved materially.
That announcement from the Fed has lowered mortgage rates. According to the Mortgage Bankers Association, applications for home loans jumped 16.6 percent in the week ended September 28 from the week before.
Wells Fargo & Co also benefited from the mortgage bonanza, posting a 22 percent increase in third-quarter profit on Friday.
The Fed's buying program also lifted JPMorgan's profits in fixed-income trading, which rose 33 percent, excluding adjustments for changes in the value of the bank's debt. That increase could bode well for other big investment banks due to report results over the next week, including Goldman Sachs Group Inc and Morgan Stanley.
JPMorgan's third-quarter net income was $5.71 billion, or $1.40 a share, up from $4.26 billion, or $1.02 a share, a year earlier.
Analysts had expected, on average, $1.24 a share, according to surveys by Thomson Reuters I/B/E/S. It was not immediately clear whether the analyst forecast was comparable to the reported results.
Profits at JPMorgan's investment bank, excluding accounting adjustments for changes in the value of JPMorgan debt, rose to $1.7 billion from $1.2 billion a year earlier, when the European debt crisis cast a darker shadow over the capital markets.
JPMorgan shares were little changed in morning trading. Through Thursday the shares were up 27 percent this year, almost twice the rise in the Standard & Poor's 500 stock index but about three percentage points less than the KBW Bank stock index.
The bank set aside an additional $684 million, before taxes, in the third quarter to cover legal settlements and judgments. A year earlier, it boosted its legal reserves by $1 billion.
JPMorgan was sued last week by the New York state attorney general over allegations that Bear Stearns, salvaged by the bank in a 2008 takeover assisted by the government, had deceived investors buying mortgage-backed securities in 2006 and 2007. Though the allegations were similar to ones already made by private investors in civil suits, the lawsuit raised concerns among analysts that there are more litigation costs to come for JPMorgan and other banks.
Dimon on Wednesday said the lawsuit was "unfair" because JPMorgan had done the Fed "a favor" by taking over a broken Bear Stearns.
(Reporting by David Henry, Jed Horowitz and Lauren Tara LaCapra in New York; editing by Dan Wilchins and John Wallace)