JPMorgan Results Soured by Consumer Weakness - TheStreet

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JPMorgan Chase's

(JPM) - Get Report

healthy results in its investment banking unit helped it easily top Wall Street's quarterly profit expectations Friday, but two of its seven businesses reported a loss for the fourth quarter.

JPMorgan Chase earned $3.3 billion, or 74 cents a share, for the final three months of 2009. Revenue totaled $25.2 billion for the quarter, falling short of expectations. The average estimate of analysts polled by Thomson Reuters was for a profit of 61 cents a share in the December period on revenue of $27.02 billion.

JPMorgan said its investment banking unit posted a profit of $1.9 billion for the quarter, nearly two-thirds its total earnings for the period, as the company racked up fees from equity and debt underwriting activities and advisory services. The investment banking unit also includes the company's fixed income markets business, which posted revenue of $2.7 billion during the period, a sequential decline from the third quarter that JPMorgan attributed to "lower overall volumes and tighter spreads across products."

"We are gratified that we generated earnings of $3.3 billion for the fourth quarter and nearly $12 billion for the year," Chairman and CEO Jamie Dimon said in a statement. "Though these results showed improvement, we acknowledge that they fell short of both an adequate return on capital and the firm's earnings potential."

While the investment bank continued to outperform, JPMorgan Chase's retail financial services and card services business lines both reported quarterly net losses of $399 million and $306 million, respectively.

Within retail financial services, which encompasses JPMorgan Chase's retail bank and consumer lending operations, noninterest revenue fell 35% from the prior year to $2.6 billion. JPMorgan Chase attributed that to "lower

mortgage servicing rights risk management results" and "an increase in reserves for the repurchase of previously sold loans."

While JPMorgan Chase's retail banking arm had solid performance, its consumer lending arm, continued to be a source of trouble for the big financial institution. Consumer lending specifically reported a net loss of $1.4 billion vs. a loss of $416 million in the prior year's period. JPMorgan Chase said that the larger loss was driven by lower net revenue, driven by negative mortgage product revenue and lower net mortgage servicing revenue.

JPMorgan Chase also said that "weak economic conditions and housing price declines" continued to drive higher estimate losses for its mortgage and home equity portfolios.

Within Card Services, another troubled area for JPMorgan Chase this year, the loss reflects an increase in the provision for losses, reflecting continued weakness in the credit environment, despite higher managed revenue and lower noninterest expenses, the company said.

JPMorgan Chase expects its credit card operations to continue to record a loss through mid-2010, according to reports Friday morning.

Dimon noted that JPMorgan strengthened its credit reserves to nearly $33 billion in the fourth quarter, a level that represents about 5.5% of total loans, he said. The company finished the year with a Tier 1 Capital ratio of 11.1% and a Tier 1 common ratio of 8.8%.

JPMorgan said that overall credit costs remained high as it added $1.9 billion to its consumer loan loss reserves in the period. Its firmwide credit reserves now total $32.5 billion.

"While we are seeing some stability in delinquencies, consumer credit costs remain high, and weak employment and home prices persist," Dimon added. "Accordingly, we remain cautious."

In the third quarter of fiscal 2009, JPMorgan also beat Wall Street's consensus profit view by a wide margin, posting earnings of 82 cents per share, compared to an average analysts' view of 52 cents. Revenue totaled $28.78 billion in the third quarter. For last year's fourth quarter, even with the financial crisis at full boil, the company was able to earn 6 cents a share.

Shares were down 1.9% to $43.86 in afternoon trades. The low for the session is $43.34, a level that's 8.7% below the stock's 52-week high of $47.47, which it reached on Oct. 14, just prior to the company's third-quarter earnings report. Volume of 51.5 million well exceeded the issue's trailing three-month daily average of 35.3 million.

JPMorgan is the first of the big banks to report its results for the fourth quarter.

Bank of America

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, and

Wells Fargo

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are all slated to release their reports next week.

Bank of America shares were off 3.1%, Citigroup's stock was down 2.4% and Wells Fargo lost 3.3% in recent trades as the financials, particularly

Morgan Stanley


concerns brought on by

JPMorgan's report.

-- Written by Michael Baron and Laurie Kulikowski in New York