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JPMorgan Chase reports 23 percent increase in 3Q profits

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Kai Ryssdal: The fall 2010 bank earnings season began with a bang this morning. JPMorgan Chase beat everybody’s guesses with a 23 percent increase in profits. It set aside less money for potential credit card losses, because the bank says, people are getting better at keeping up with their payments. However, profits from its investment banking business were down, as were returns from mortgage banking. Those are details that matter to JPMorgan and its shareholders.

For the rest of us, big picture time. Marketplace’s Jeremy Hobson has the story from New York.

Jeremy Hobson: Let’s go back to 2007 with Karen Petrou, managing partner at Federal Financial Analytics. I asked her: What were the top three things that big Wall Street banks were making their money on back then?

Karen Petrou: Sub-prime mortgages, generating fee income out of the retail banking line and what I call “structured finance.”

Meaning all those crazy securitized mortgages and “investment vehicles” that it turns out aren’t as much fun as the banks thought they were. Now, in 2010, Karen Petrou: How are banks like JPMorgan spending their time?

Petrou: Risk absorption and management, net interest margin management and balance sheet rebuilding.

Translation: Cleaning up the mess and making money on the difference in interest rates between what they borrow and what they lend. You know, the bank stuff of old Hollywood movies.

Jamie Peters, a banking analyst at Morningstar, says the other things depressing earnings this quarter are new rules about how much cash banks have to hold in case of losses.

Jamie Peters: They’re trying to navigate the waters of additional capital and yet at the same time trying to maintain profitability for their shareholders.

Which, it appears they were able to do today, even in this new era of banking.

Peters: JPMorgan right now is a lot less profitable than they were pre-crisis, and they’re a lot less profitable than they’re going to be probably in a couple of years.

That, she says, is because in the third quarter of 2010, the credit crisis isn’t in the rear view mirror for banks just yet.

In New York, I’m Jeremy Hobson for Marketplace.

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