New York: JPMorgan Chase narrowly avoided a loss in the fourth quarter, indicating that it is weathering the financial crisis better than some of the other big banks.
But the meager profit was driven by its acquisition of Washington Mutual Inc., and the bank added $4.1 billion to loan loss reserves proving that it is not immune to the deepening global recession.
Chief Executive Jamie Dimon called the quarter “very disappointing.” Results were hurt by $2.9 billion in markdowns in JPMorgan’s investment bank, and deterioration in various types of loans from mortgages to home equity loans to credit cards to commercial real estate loans.
“If the economic environment deteriorates further, which is a distinct possibility, it is reasonable to expect additional negative impact on our market-related businesses, continued higher loan losses and increases to our credit reserves,” Dimon said in a statement.
The New York-based bank on Thursday reported a profit of $702 million, or 7 cents per share, down 76% from $2.97 billion, or 86 cents per share, a year ago.
Analysts, who had been trimming their estimates in recent weeks, expected break-even results. Analyst estimates tend to exclude one-time items. JPMorgan said it got a $1.1 billion gain, after taxes, from “merger-related items.”
Shares rose about 2 percent in premarket trading.
Viewed as one of the stronger US banks for several quarters now, JPMorgan Chase & Co. is in the midst of absorbing the two weaker banks it bought last year: Washington Mutual and Bear Stearns Cos.
JPMorgan is the first of the big US banks to report results for the fourth quarter. The quarter was a particularly rough one for the financial services industry, leading the U.S. government to loan hundreds of billions of dollars to US banks to get them to lend more. JPMorgan Chase got $25 billion, as did Bank of America Corp., Wells Fargo & Co., and Citigroup Inc. In December, Citigroup got an extra $20 billion dose of funding.
JPMorgan said Thursday that it extended more than $100 billion in new credit to individuals, businesses, municipalities and nonprofit organizations.
“I think we’re speaking for lots of banks here , people are out making loans,” Dimon said in a conference call with investors. He said “loan demand is actually dropping dramatically,” and that JPMorgan is “trying to follow the intent and spirit” of the government’s Troubled Assets Relief Program.
JPMorgan in a couple days will be releasing more details on its efforts to modify mortgages, Dimon said. He said, though, he believes legislation to modify mortgages by lowering principals through bankruptcy could have a “chilling effect” on US consumer lending.
During the fourth quarter, JPMorgan’s investment bank posted a loss of $2.4 billion, after a profit of $124 million a year ago. Card services also reported a loss of $371 million, after a profit of $609 million a year ago, as more cardholders failed to make their payments.
The retail financial services segment reported a 15% drop in profit to $624 million, due to losses in consumer lending. Income from asset management fell to $255 million from $527 million, while income from the corporate and private equity business rose to $1.5 billion from $270 million.
The commercial banking unit reported a record profit of $480 million, up from $288 million a year ago. Treasury and securities services also posted a record profit, of $533 million, up from $422 million.
For all of 2008, JPMorgan Chase posted a profit of $5.6 billion, or $1.37 a share. That was down from a record annual profit in 2007 of $15.4 billion, or $4.38 a share.
Citigroup reports fourth-quarter and annual results on Friday. The bank just sold control of its Smith Barney brokerage to Morgan Stanley to raise capital.
Bank of America Corp. releases its results on Tuesday. Bank of America will be getting billions in extra government aid to help it absorb losses at Merrill Lynch, the firm it bought last year, according to a report published in The Wall Street Journal.