JPMorgan Chase & Co's fourth-quarter profit fell 76 per cent as it wrote down bad loans and set aside more money to cover credit losses at its investment bank. Without special items like merger gains, the company would have posted a loss, and its shares fell 2.4 per cent to $25.28 before the market opened.
Fourth-quarter net income was $702 million, or 7 cents a share, compared with $2.97 billion, or 86 cents, a year earlier, the New York-based bank said today in a statement. That included a $1.3 billion gain from closing a joint venture and ''risk- management results,'' the company said. Without the gains, JPMorgan lost 28 cents a share.
"Our fourth-quarter financial results were very disappointing," CEO Jamie Dimon said in a statement. ''''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.''
JPMorgan said it ended the year with $136.2 billion in Tier 1 capital, a measure of capital strength based on the riskiness of bank assets. The fourth quarter was the first to include results from failed thrift Washington Mutual Inc, which JPMorgan acquired in September. The company said the integration of WaMu was progressing and losses at the thrift had been within expectations. (See: Federal Reserve seizes WaMu; auctions it to JPMorgan for $1.9 billion)
JPMorgan's investment-banking division lost $2.36 billion in the fourth quarter, compared with profit of $124 million the previous year, and revenue was negative $302 million. Leveraged loan write-downs totaled $1.8 billion, and mortgage-related write-downs were $1.1 billion. Loans made before the credit crisis began were written down to 55 cents on the dollar, CFO Michael Cavanagh said on a conference call with analysts today.
Earnings at the consumer-banking subsidiary declined 15 percent to $624 million from $731 million as the firm set aside more money for bad loans. JPMorgan may cut more employees in the investment bank, possibly to levels before the Bear Stearns Cos. acquisition, Dimon said. (See: JP Morgan Chase cuts 9,200 jobs at Washington Mutual and (See: US Fed clears JP Morgan's acquisition of Bear Stearns bank)
The acquisition of WaMu, the largest US bank to fail, ratcheted up JPMorgan's exposure to consumer credit. Dimon had warned investors several times in the fourth quarter about the effects of a deepening recession and rising unemployment on the bank's large consumer business.
"JPMorgan Chase's management team is working diligently to manage through this very difficult business climate, and to position the franchise to benefit when the economy eventually recovers," he said in a statement.
At Wednesday's close, JPMorgan shares had fallen 17.9 per cent so far this year, compared with a 19.2 per cent decline in the KBW Bank Index. In 2008, JPMorgan stock slumped 27.8 per cent in 2008, compared with the index's 50 per cent decline.
JPMorgan, which moved up its earnings announcement by six days, is the first of the largest US banks to disclose fourth- quarter figures. New York-based Citigroup reports tomorrow, and Bank of America Corp., which bought Merrill Lynch & Co. two weeks ago, is scheduled to release results on 20 January. The bank may get more aid from the government to help absorb losses to Merrill's holdings, three people familiar with the matter said.