JPMorgan Chase & Co. (NYSE:JPM) reported 3Q12 EPS of $1.40, which we estimate as $1.38 excluding all non-recurring items. On a like for like basis with consensus estimates of $1.28. JPM earned $1.50 per share. Given the annual run-rate for the quarter implies EPS $5.50.

Analysis

JPMorgan earnings Q3 beat revenue breakdown by sector
Via Nomura

Capital markets were strong, accounting for $0.12 of the beat given better-than-expected revenue in investment banking, fixed income (+7% qoq) and equity trading (flat qoq).

Mortgage banking was also very strong (production revenue of $1.77bn vs estimates of $1.68bn), as gain on sale spread increased 20bp qoq to 3.76%.

Expense discipline led to the most EPS upside ($0.13/share) despite better-than-expected revenue, driven in part by a lower comp ratio.

Loan balances declined as weak industry trends clearly weighed. While overall NII was in line with our estimate at $11.0bn, JPMorgan Chase & Co. (NYSE:JPM) increased its guidance for NII pressure going forward, indicating it expects to see over 400mn of NII pressure going forward vs +/- $400mn previously.

Basel 3 capital increased 50bp to 8.4% from 7.9% last quarter, as JPM appears to be well on its way to being B3 compliant by the end of 2013. Core charge-offs and reserve release were in line, but overall provision was driven higher (-$0.10/share) by a regulatory change on how to account for defaults when a borrower files for bankruptcy.

CIO results seem to be leading to some confusions. The CIO positioned is now closed, but resulted in a $450mn hit this quarter, according to Goldman Sachs research. However, Meredith Whitney notes, ‘We include a $1bn loss for CIO. Excluding the charge, we are $1.20.’

Disclosed losses from CIO/CDS registered at $449mm, and expectations for losses of $300mm (+/- $100mm) for 4Q12, or in-line with previous guidance of $800mm-$1.6B, and quarterly losses of +/- $200mm. No discussion of capital management plans in press release, according to Sterne Agee.

Robert Baird notes  that franchise investments are driving market share gains. JPM has maintained one of the strongest capital and reserve positions in the industry, which has enabled management to make investments in the franchise during the difficult macro environment.

They believe JPMorgan Chase & Co. (NYSE:JPM) acquisitions of Bear Stearns and Washington Mutual were both strategically and financially attractive deals that meaningfully added to the company’s earnings potential. While other banks have slashed headcount and overhead to bolster returns on capital, JPM has maintained investment spending to improve the company’s long-term competitive position.

The company appears to be taking notable market share in  commercial banking, retail banking, private banking/asset management, and investment banking. has highlighted several large potential revenue growth opportunities related to recent franchise investments including retail branch expansion, WM business banking, and Chase wealth management, which could each generate up to ~$1B in incremental pretax income over time. From our perspective, JPM is in a stronger competitive position than it was before the crisis and significant franchise investments should enable the companies generate better relative revenue and earnings growth.

Disclosure: No position