Manufacturing Gains Strength, But Hiring in Sector Stays Weak

A separate report on Monday showed that construction spending neared a four-year high in May, a sign that it has regained some strength after having collapsed in the 2007-2009 recession. Even with consumer and housing data pointing to a steadily improving recovery, pockets of concern remain, particularly jobs.

The Institute for Supply Management said its index of national factory activity rose slightly more than expected in June, to 50.9 from 49, with a reading above 50 indicating expansion. The gauge for new orders rose to 51.9 from 48.8, while production jumped to 53.4 from 48.6, helping the overall index bounce back from a contraction in May — the first in six months.

“It’s nice to see manufacturing moving back into growth territory from contraction,” said Joel Naroff, president of Naroff Economic Advisors in Holland, Pa.

But a measure of employment fell to 48.7, the lowest reading since September 2009. It was 50.1 in May. That could feed concern about the strength of the recovery, particularly since the Fed has said it could begin to wind down its stimulus this year.

“The employment issue is key,” Mr. Naroff said. “If those jobs are not there, you are not going to get consumer demand.”

A separate index from Markit, also showed modest growth in manufacturing, but recorded sharp slides in hiring and new orders from abroad.

“Firms are responding to the increasingly worrying order-book trend by pulling back on recruitment,” said Chris Williamson, Markit’s chief economist.

Construction spending neared a four-year high in May, though difficulties in the commercial real estate and factory sector subdued the pace of recovery.

DealBook: JPMorgan Shows Strength in Quarter

Larry Downing/ReutersJamie Dimon, the chief of JPMorgan Chase, at a Senate panel last year.

JPMorgan Chase, the nation’s largest bank, reported a 33 percent rise in first-quarter earnings on Friday, bolstered by gains in the investment banking business and a surge in mortgage lending.

“All our businesses had strong performance, and our client franchises did exceptionally well,” Jamie Dimon, the bank’s chief executive, said in a statement.

As the economy recovers slowly, demand for loans remained stagnant. JPMorgan said total loans at the bank fell 1 percent. Yet gains from investment banking allowed JPMorgan to record 12 consecutive quarters of profit.

Within the investment banking unit, assets grew by 8 percent to $19.3 trillion for the first quarter. Fees rose 4 percent, to $1.4 billion.

The net earnings of $6.5 billion, or $1.59 a share, exceeded Wall Street analysts’ expectations of $5.41 billion, or $1.40 a share. Revenue was $25.8 billion, compared with $26.8 billion in the same period a year earlier.

The report kicked off the bank earnings season. As the nation’s largest bank by assets, JPMorgan is often looked at as a bellwether.

A bright spot for JPMorgan’s earnings was mortgage lending, fueled in part by federal programs that have helped damp interest rates. Those low rates have prompted homeowners to refinance. In total, the mortgage banking group posted a profit of $673 million for the first quarter, down 31 percent from a year earlier.

Mortgage originations rose 37 percent in the quarter, to $52.7 billion. Still, application volumes were down, 1 percent from a year earlier, settling in at $60.5 billion. Appetite for loans was dampened, the bank said, by an uptick in interest rates earlier this year.

“We are seeing positive signs that the economy is healthy and getting stronger,” Mr. Dimon said. “Housing prices continued to improve, and new home purchases are also starting to come back.

The bank’s credit card business also improved, with sales volume rising to $94.7 billion, an increase of 9 percent from the same quarter a year earlier, but down 7 percent from last quarter. Auto lending also grew by 12 percent from a year earlier to $6.5 billion.

The results point to some of the larger challenges facing the nation’s biggest banks. As low interest rates continue to undercut profits, banks like JPMorgan are under pressure to cut expenses.

JPMorgan said on Friday that its total head count continued to fall, reaching 255,898. Non-interest expenses plummeted by 16 percent to $15.42 billion from a year earlier.

The bank has pinned some of its hopes for future profitability on its asset management business, as profits from riskier businesses like trading get undercut by a spate of new regulation. The asset management business reported net income of $487 million for the quarter, up 26 percent from a year earlier.

JPMorgan continued to gain business in private banking, accumulating $2.2 trillion in assets under management, up 8 percent from a year earlier.

Some of the strength in earnings, however, were helped by JPMorgan’s decision to reduce reserves for mortgages and credit-card loans. By moving money from the reserves, which cushion the bank against potential loses, the bank got a net 18 cent gain a share.

Addressing questions on Friday about whether the earnings are deceptively strong, Mr. Dimon said in a conference call that even after the reserve reductions, “we had really good numbers everywhere.”

JPMorgan also disclosed on Friday that it had changed a crucial measure that had helped obscure the risk of a series of complex wagers on credit derivatives. Those bets, made by the bank’s chief investment office, ultimately led to more than $6 billion in losses, claimed the jobs of top bank executives and forced Mr. Dimon to account for the losses before Congress.

The measure, called value at risk, or VAR, is used to estimate the losses associated with trading positions. JPMorgan said in a supplemental filing Friday that it had altered the value at risk metric for the corporate and investment bank to “achieve consistency with like products.”

As the traders in London assembled increasingly complex bets that ultimately led to the trading losses, JPMorgan changed how it measured risk in January 2012. That tweak allowed the traders in the chief investment office, to continue building the large wagers, according to Congressional investigators.

JPMorgan has changed its VAR model at least four times since January 2012. Explaining one such change, Mr. Dimon told the Senate Banking Committee in June that the bank had decided the model wasn’t effectively gauging risk and changed it in May. But that change alone meant that risk on the trades was underestimated by at least half.

Still, another quarter of robust earnings give the bank another chance to move beyond that multibillion-dollar trading loss.

Since announcing the trading loss last May, JPMorgan and its influential chairman, Mr. Dimon, have struggled to reassure skittish investors and defray a series of federal investigations related to the bungled wagers on complex-credit derivatives. Mr. Dimon has testified before Congress, vastly reshuffled its executive ranks and fortified risk controls. In January, JPMorgan’s board slashed Mr. Dimon’s compensation by 50 percent to $11.5 million.

More recently, Senator Carl Levin, Democrat of Michigan, grilled current and former senior executives at the bank about lax oversight policies and gulfs in risk management. The Congressional hearing, which lasted for nearly four hours, renewed pressure on Mr. Dimon and the bank. At times, senior executives floundered as they tried to combat lawmakers’ accusations that the officials misled investors and regulators about the soured bet. The hearing came just a day after a scathing 300-page report into the losses.

Mr. Dimon has struck a more contrite tone, seemingly chastened by the continued fallout from the trading losses. In his annual letter to shareholders, released on Wednesday, Mr. Dimon repeatedly apologized for the losses. He described the losses as the “the stupidest and most embarrassing situation I have ever been a part of,” vowing to continue to bolster risk controls and rout out problems.

Rather than taking a combative tone toward regulations that rein in Wall Street, Mr. Dimon expressed regret for how the trading losses “let our regulators down.”

In his letter, Mr. Dimon also warned shareholders that the bank would continue to face regulatory challenges in the “coming months.” JPMorgan, Mr. Dimon said, will deploy resources to improve firmwide controls on risk and compliance. “We are reprioritizing our major projects and initiatives,” he said.

The earnings on Friday come just a month before JPMorgan’s annual shareholder meeting, where the results of a crucial vote will be announced. Shareholders will decide whether to strip Mr. Dimon of his chairman title, a role he has held since 2006. Ahead of the nonbinding vote, JPMorgan has been working behind the scenes to make their case to shareholders that Mr. Dimon should keep the dual roles.

DealBook: Despite Cyprus Woes, European Capital Markets Show Strength

LONDON – Despite the banking crisis in Cyprus, Europe’s capital markets are still open for business.

On Friday, the British insurance firm Esure raised £604 million, or $917 million, in one of the largest initial public offerings so far this year in Europe. The European banks, Santander and KBC, also pocketed a combined $1.5 billion through a 21 percent share sale in Bank Zachodni, a Polish subsidiary.

The successful offerings come despite growing uncertainty about how the stalemate in Cyprus will affect Europe’s sluggish recovery from its debt crisis.

The Continent’s policy makers are still trying to hammer out a deal that will force the small European country to contribute 5.8 billion euros, or $7.6 billion, toward a 10 billion euro bailout package for Cypriot banks.

Some analysts have warned that the resurgent euro zone crisis could knock investors’ appetite for new listings. Before Cyprus flared up, money raised from new European I.P.O.’s in the first quarter of the year was expected to jump by almost 70 percent compared with the same period in 2012, according to statistics from the accounting firm Ernst & Young.

“Conditions have improved significantly for the region,” said Maria Pinelli, the global strategic growth markets leader at Ernst & Young’s. “However, the euro zone’s political and economic difficulties are casting a shadow across the capital markets.”

The British insurer Esure shrugged off the dark clouds on Friday after the firm secured its listing close to the top of its expected price range. Trading in Esure, which provides home and car insurance across Britain, started on Friday, and gave the British company a market capitalization of around £1.2 billion.

It is the latest firm to tap London’s capital markets. On Wednesday, the British property company Countrywide raised £200 million from its I.P.O., while the insurance firm Direct Line, which is part owned by the nationalized Royal Bank of Scotland, raised £787 million from the capital markets in October.

In Poland, Santander of Spain and KBC of Belgium also raised a combined $1.5 billion from selling shares in their Polish unit Bank Zachodni, though the firms were forced to price the sale below Bank Zachodni’s closing price on Thursday.

Despite uncertainty caused by Europe’s financial difficulties, some global markets remain strong, as investors bet on growing demand from consumers in emerging economies. Singapore and Japan accounted for almost two-thirds of the money raised from new offerings in the first quarter of the year.

A consortium led by the European private equity firm CVC Capital Partners took advantage of this sentiment on Friday by raising $1.3 billion from a share sale in Indonesia’s largest department store operator, according to a person with direct knowledge of the matter, who spoke on the condition of anonymity because he was not authorized to speak publicly.

CVC and its partners — a unit of the Indonesian conglomerate Lippo Group and the Government of Singapore Investment Corporation – will retain majority control of the Indonesian retailer Matahari, and secured backing from several global investors, including BlackRock and the asset management units of Goldman Sachs.

Neil Gough contributed reporting from Hong Kong.

DealBook: BlackRock Earnings Up on Strength in E.T.F.'s

Toru Yamanaka/Agence France-Presse — Getty ImagesLaurence D. Fink, chairman and chief of the money manager BlackRock.

The giant money manager BlackRock on Wednesday turned in a strong third-quarter profit despite the continuing uncertainty of investors.

The news comes at a time when many investors have been continuing to shy away from taking financial risks.

BlackRock benefited from strong interest among investors in less risky bond funds and passively managed exchange-traded funds. More money flowed into the company’s iShares E.T.F. business than at any time since BlackRock acquired the business from Barclays in 2009.

The firm said that on an adjusted basis, third-quarter profit rose 17 percent, to $610 million, from the period a year earlier, and 9 percent from the previous quarter. It earned $3.47 a share on a diluted basis, a record for the company, and exceeded the $3.32 a share expected by analysts surveyed by Bloomberg News.

On a generally accepted accounting principles basis, earnings increased 8 percent, to $642 million or $3.65 a share, from $554 million, or $3.08 a share, in the quarter a year earlier.

BlackRock has grown into the world’s largest money manager over the last decade thanks to its acquisition of iShares, but also as a result of growth in its traditional stock and bond mutual funds and in its more sophisticated offerings for larger, institutional investors.

In the latest quarter, the company increased the total pool of money it was managing for investors by 10 percent from a year earlier. Revenue across the company rose to $2.32 billion, up 4 percent from the previous quarter and also 4 percent from the third quarter of 2011. In the second quarter, both revenue and assets under management fell at BlackRock.

The firm’s chief executive, Laurence D. Fink, said in a statement that BlackRock “achieved these results through robust new business generation across each of our channels, with particular strength in growth areas on which we’ve focused, including retail and iShares.”

In recent weeks, Charles Schwab and Vanguard said they would lower the fees on some of their most popular E.T.F.’s. BlackRock followed suit on Monday, saying it would introduce a new lower-cost brand of E.T.F. for retail investors, the iShares Core Series. The move could help BlackRock maintain its status as the world’s largest E.T.F. manager.