OREANDA-NEWS. JPMorgan Chase & Co.'s (JPM) third quarter 2015 (3Q15) results benefited from the recognition of several unusual items, and while core results were down from 3Q14, they were still solid, with an adjusted return on tangible equity of approximately 12%. Increased market volatility, interest rate uncertainty, and pressures in oil & gas had an impact on a variety of segments, but Fitch Ratings believes the diversity of the platform and the bank's market positioning in the businesses in which it operates continued to support peer-superior performance.

Unusual items in the quarter included about $1 billion of firmwide legal expenses, which includes CDS settlements and $2.2 billion of tax benefits, both of which are after-tax numbers. JPM also recognized $591 million of consumer reserve releases in the quarter, which were partially offset by a $310 million increase in wholesale reserves related to select downgrades in the oil & gas portfolio.

Corporate and Investment banking (CIB) produced a return on equity of 8%, or 13% adjusting for legal expenses, tax benefits, and reserve builds. Revenues were down in the quarter as strong investment banking, advisory, and equity markets activity were more than offset by weaker performance in fixed income markets, securities services, and treasury services, which was largely anticipated by Fitch. Markets revenues were down 16% from 3Q14, or down 6% adjusting for business simplification. There was a $232 million reserve build in the quarter, which included about $128 million directly associated with oil & gas exposure. Still, net charge-offs in the segment, at 0.01% in the quarter, remain very strong.

CIB reported average VaR of $57 million for the quarter, which was up from $43 million in the prior quarter and $35 million in 3Q14, due largely to an increase in fixed income VaR. Fitch expects segment VaR to rise with increased market volatility. Overall, Fitch believes CIB segment performance continues to benefit from the firm's global reach and scale, and market share gains, at least on the margin, are likely to continue.

The Consumer and Community Banking (CCB) segment produced a return on equity of about 20% in the quarter due to a reduction in provision expense and improved cost efficiencies. The business is committed to reducing expenses by $2 billion by the end of 2017. Through 3Q15, expenses have declined $600 million, or $700 million adjusting for legal expense. Core loans were up 23% year over year, driven by growth in mortgage loans, business banking, and auto.

Mortgage origination was up 41% year over year and about 2% sequentially given a stronger pipeline and an improvement in the purchase market. JPM continues to balance sheet high-quality mortgages, adding about $19 billion in the quarter. Mortgage servicing revenue continued to decline, given a reduction in the servicing book, but servicing expenses are also down as the bank looks to right-size the business. Fitch expects mortgage servicing expenses to continue to improve in 4Q15. Credit trends in the real estate portfolio remained strong, with non-purchased credit impaired (PCI) losses of 0.10% in the quarter; down 11 basis points (bps) sequentially. JPM released $575 million of reserves in the mortgage portfolio during the quarter, including $200 million associated with the non-credit-impaired portfolio and $375 million associated with the PCI portfolio. Releases for both segments were supported by reduced delinquencies and improving home prices.

The card, commerce solutions and auto segment generated a return on equity (ROE) of 22%, which was a solid quarter, but down year over year. Net interest income was up due to strong volume and a reduction in the reserve for uncollectable interest and fees. However, non-interest revenues were down due to the re-pricing of certain co-brand partnerships to market, including the bank's relationships with United Airlines and Southwest Airlines, partially offset by higher auto lease volume and a 5.9% increase in card sales volume. Average card loans were flat year over year and total segment loans grew about the same.

Credit performance remained pristine, with card net charge-offs declining 20bps sequentially, to 2.41%. That said, delinquencies were up 9bps from the prior quarter, due in part to seasonality, and JPM expects losses to be about 2.5% over the medium term. While net charge-off dollars were down 7.6% from 3Q14, provision expense rose about 1%, to account for portfolio growth. The allowance for loan losses for the segment was 2.16% of ending loans in 3Q15, down 2bps sequentially. Fitch believes credit metrics in the segment are at or near a bottom.

Commercial Banking's (CB) contribution to earnings was down in the quarter given a decline in investment banking revenues, higher operating expenses, and an increase in provision expense. Still, management expects investment banking revenue in the segment to be at record levels for the year, surpassing $2 billion, given a strong pipeline. Despite a modest reserve build, partially attributable to oil & gas exposure, credit performance remains strong, with no net charge-offs in the quarter.

Market sentiment negatively affected asset management (AM) earnings in the quarter given lower transactional revenues. The sale of the retirement planning services business in 2014 also had an impact year-over-year comparisons. Assets under management (AUM) declined to $1.7 trillion at quarter-end as JPM experienced its first quarter of net outflows in some time, driven by interest rate uncertainty and equity market declines.

From a liquidity perspective, JPM's high quality liquid assets remained strong, at $505 billion in the quarter, and the bank has reduced non-operating deposits by more than $150 billion through 3Q15; outpacing its year-end 2015 target by over $50 billion. Over the same period, total deposits are down by approximately $90 billion, as growth in more stable balances helped to offset the decline. Average deposits in the CCB segment were up $38.3 billion from year-end 2014, while average CIB deposits were down about $61.8 billion. Fitch views this shift favorably, given the relative stability of retail deposits and favorable treatment in liquidity ratios.

JPM's Basel III Tier 1 Common equity (CET1) ratio rose 40bps sequentially, to 11.4%, given earnings retention and a decline in risk-weighted assets. The bank's capital ratio is now the same under both the advanced and standardized approaches, and the standardized ratio is expected to be the binding constraint going forward. The supplementary leverage ratio (SLR) grew 30bps at the firm level and 40bps at the bank level, to reach 6.3% and 6.5%, respectively, at quarter-end, which is compliant with regulatory requirements. In terms of G-SIB requirements, JPM believes it is currently in the 4% bucket, with regard to the buffer, given actions taken by the bank and final U.S. rules. This is down from the 4.5% bucket previously, but remains at the high-end of the peer group. Fitch regards JPM's capital levels to be consistent with its current ratings and would expect the bank to achieve full compliance with all regulatory requirements, well ahead of required implementation.

JPM paid a dividend of $0.44 per share in the quarter, equating to a payout of 26.2% of reported earnings per share, or a payout of 33.3% adjusting for unusual items in the quarter. The bank repurchased $1.2 billion of equity in the quarter, leaving approximately $3.9 billion of repurchase authority, based on the results of this year's CCAR process.