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JPMorgan Chase Disappoints; Dimon Hints at More Buybacks (Update 2)

Story updated with more information and management commentary.

  • JPMorgan Chase reported a fourth quarter profit of $3.7 billion of 90 cents per share.
  • Revenue was flat at $22.3 billion.
  • Analysts expected earnings per share of 92 cents according to consensus estimates from Zacks

NEW YORK ( TheStreet) - JPMorgan Chase (JPM - Get Report) reported a 23% decline in net profits in the fourth quarter, disappointing expectations, but the management said investors should see encouraging loan growth trends as a sign that the mild economic recovery was strengthening.

The nation's largest bank by assets kicked off the fourth-quarter earnings season, reporting a net income of $3.7 billion or 90 cents per share on a managed basis, compared to a year-ago net income of $4.83 billion or $1.13 per share and a third quarter net income of $4.3 billion or $1.02 per share.

Revenue came in at $22.2 billion, down 17% from a year earlier. In the third quarter, the bank reported a revenue of $24.36 billion, which included a $1.9 billion accounting gain.

Analysts expected JPMorgan Chase to report an earnings per share of 92 cents on revenues of $22.99 billion, according to consensus estimates from Zacks.

"The Firm's returns on tangible common equity for the fourth quarter of 2011 and the full year 2011 were 11% and 15%, respectively," CEO Jamie Dimon said. "We believe these returns were reasonable given the environment, although the return for the fourth quarter was modestly disappointing.".

The profit drop was led by a 56% drop in profits from investment banking and trading operations. The division contributed 27% of the revenues in 2011 and more than 35% of the profit in 2011, but CEO Jamie Dimon said in a media conference call that investors should "forget trading" because it was always going to be a volatile business.

Instead, he drew attention to loan growth, with loan balances up 4% quarter on quarter, driven by strong business lending. Dimon said he was not sure how much of the loan growth was driven by share gains and how much of it reflected underlying demand but he said that the Fed's lending data showed there was "real" loan growth.

He said that the mild recovery might actually be strengthening and job creation, while not as much as one would like it to be, was likely "self-sustaining."

JPMorgan once again trumpeted its "fortress balance sheet", with a Basel I Tier I Capital ratio of 10% even after purchasing $9 billion in common stock in 2011. The bank has a Basel III Tier 1 Common Ratio of 7.9% at the end of the fourth quarter.

Dimon hinted during the analyst conference call that more buybacks and dividends might be in store for investors, although he refrained from making any firm commitments while the Fed is still evaluating its capital plans. But he said JPMorgan will be able to comfortably pass the Fed's stress test, despite a harsh scenario that called for an unemployment rate of 13%, a steep housing decline and a significant global market shock.

In another sign that the bank might be willing to buy back more stock, Dimon seemed to back away from his previous target of a Basel III Tier 1 Common Ratio of nearly 9% by the end of 2012. He expressed a desire to buy back stock given the fact that shares trade below tangible book.

. The board of JPMorgan has already authorized up t0 $15 billion in buybacks. With $9 billion already expended, that leaves $6 billion potentially up for repurchases, though the board could raise the authorization. "We hope to do at least what we did in 2011," Dimon said.

He also added that the bank remained committed to a modest increase to dividend every year. All will, of course, depend on what the Fed says on March 15, when the results of the CCAR are announced.

Shares of JPMorgan were down 3.5% in Friday trading. Rumors about another European downgrade were also holding down bank stocks. Shares of Citigroup (C), Goldman Sachs (GS) and Bank of America (BAC) were down by more than 2% each.

--Written by Shanthi Bharatwaj in New York

>To contact the writer of this article, click here: Shanthi Bharatwaj.

>To follow the writer on Twitter, go to http://twitter.com/shavenk.
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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