JPMorgan loan losses overshadow higher Q4 profit

JPMorgan loan losses overshadow higher Q4 profit
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First Published: Fri, Jan 15 2010. 07 54 PM IST
Updated: Fri, Jan 15 2010. 07 54 PM IST
New York: JPMorgan Chase & Co reported deep losses on mortgage and credit card loans in the fourth quarter, dashing hopes that consumer credit is on the mend and sending the bank’s shares down 1.5%.
Quarterly profit soared to $3.3 billion, topping expectations, but analysts had been hoping for signs that the bank’s credit costs were leveling off or even starting to fall.
“I don’t think we can take away from these results that we are any further along in the (economic) recovery than we thought we were,” said David Dietze, chief investment officer at Point View Financial Services.
JPMorgan, the first of the major US banks to report fourth-quarter results, said it set aside more money in the period to cover consumer credit losses.
The results could indicate more trouble for Citigroup Inc and Bank of America Corp, which report quarterly results next week. Both have large consumer loan exposure.
Investors were keen to hear JPMorgan’s forecast for 2010, and its projections were hardly sunny. In a conference call with reporters, chief financial officer Michael Cavanagh said the bank has a “cautious outlook” for the year.
He said JPMorgan would boost its dividend this year “if we’re lucky.” The bank now pays 5 cents per share quarterly, and many investors expect an increase.
The New York-based bank’s quarterly profit amounted to 74 cents a share. Analysts on average expected 61 cents, according to Thomson Reuters I/B/E/S. Year-earlier earnings were $702 million, or 6 cents a share.
Revenue, excluding assets that have been packaged into bonds and largely sold to investors, totaled $25.2 billion, falling short of analysts’ average forecast of $26.8 billion.
Chief executive Jamie Dimon said in the earnings statement, “While we are seeing some stability in delinquencies, consumer credit costs remain high, and weak employment and home prices persist.”
JPMorgan shares were down 68 cents to $44.01 in early trading. Shares of other major banks were also lower, weighing on the broader market.
Consumer Exposure
The bank’s large mortgage and credit card businesses have seen rising credit costs in the last year, offset only by record investment banking revenue.
JPMorgan said it set aside $4.2 billion to cover mortgage losses in the fourth quarter, up $653 million from a year earlier. Loan loss reserves in its commercial banking unit increased to $494 million from $190 million.
Prime mortgage net charge-offs -- loans the bank does not expect to be repaid — soared to $568 million, or an annualized 3.81% of the mortgage book, from $195 million, or 1.2%, a year earlier.
“JPMorgan is the bellwether, it is the best, most well-capitalized, best-managed bank,” said Jamie Cox, managing partner at Harris Financial Group in Colonial Heights, Virginia. “You would hope they’d be the first bank to be able to begin the process of paring down loan loss reserves.
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First Published: Fri, Jan 15 2010. 07 54 PM IST