Belfast Telegraph

JP Morgan profits dip 4% in new blow for bank sector

By Jamie Grierson

The banking sector has suffered further knocks after one of the world's biggest banks unveiled a drop in profits and two British taxpayer-backed institutions had their credit ratings cut.

US banking giant JP Morgan Chase said net income fell 4% to $4.3bn (£2.7bn) as its businesses were struck by the eurozone debt crisis and fragile recovery in the US.

Elsewhere, agency Fitch cut the long-term ratings for Lloyds Banking Group and Royal Bank of Scotland by two notches to reflect weakening support for the banking sector from the Government.

JP Morgan is the first of the big US banks to release its third-quarter results, with Citigroup, Wells Fargo, Bank of America, Morgan Stanley and Goldman Sachs reporting next week.

The investment bank cut employee compensation by 2% in the first nine months of the year to $7.7bn (£4.9bn), averaging $289,611 (£184,795) in annual salaries, bonuses and benefits for each of the division's 26,615 employees.

Jamie Dimon, JP Morgan's chairman and chief executive, said: "We believe the firm's returns were reasonable."

Meanwhile, Fitch's move follows the same decision by Moody's Investor Service to downgrade the debt of Lloyds Banking Group, Santander UK, Royal Bank of Scotland, Co-operative Bank, Nationwide and seven smaller building societies.

Fitch, which also placed Barclays on watch for a possible downgrade, said: "The banking system is not only large relative to the UK economy, but there is also more advanced political will to reduce the implicit support for the country's banks."

Fitch's decision - which led to further falls for banking shares on the London Stock Exchange - reflects moves by the Government to shift risk away from taxpayers and on to creditors but could see the cost of borrowing for the affected institutions increase.

But Fitch said Lloyds and RBS had shown steady improvement in their risk profiles over the past two years and they should achieve higher ratings in the medium term. Lloyds, which is 40.2% owned by the taxpayer, said last week that it did not expect Moody's decision to hit funding costs, while RBS, which is 83% state-owned, said it was "disappointed" by the move.

Manthos Delis, analyst from Cass Business School, said: "There is always a possibility that a forecast becomes self-fulfilling.

"We must understand that a downgrade by one point should not imply grave danger, but should be taken as a wake-up call."


Amount of net income reported at JP Morgan Chase, a 4% drop