Massive venture capital gains from the buoyant tech market pushed Chase's (CMB) fourth-quarter earnings well above expectations, but the largesse is also creating a big headache for bank-stock investors and analysts.

Has Chase become a New Era bank whose venture capital portfolio will ensure gilt-edged earnings for years to come, or is it now dangerously exposed to one of the greatest investment fads the nation has ever seen?

In the wake of Chase's blowout report Wednesday, some analysts and investors are taking the latter position. They contend that the outsized gains won't be repeatable for long and that dependence on venture capital efforts could expose the bank to big losses if tech stocks suffer a downdraft. Further, they question whether the huge gains aren't just Chase's way of distracting investors from disappointing results in its core business. Chase shares slid 1 1/8 Thursday to close at 73 after jumping 3 1/8 Wednesday on the strong earnings report. (Chase's VC arm,

Chase Capital Partners

, is a minority investor in

TheStreet.com Inc.

(TSCM)

, publisher of this Web site.)

Cream or Crown?

To be sure, Chase deserves a lot of credit for its VC riches. The company is experienced in -- and good at -- this game. The bank established its venture capital business in 1985 and has generated an average annual return of 40% since then. Plus, it's hardly surprising that Chase racked up such big gains in the fourth quarter, with the tech-soaked

Nasdaq

soaring nearly 50% in that period.

Nearly two-thirds of CCP's direct equity portfolio (excluding fund investments) is in New Economy industries. With that sort of exposure to hot sectors, many expect CCP to continue to be a powerful engine behind earnings. In fact, Dina Dublon, Chase's finance chief, said as much Wednesday in conference to discuss earnings: "There's plenty of upside potential" left in CCP.

But before rushing to give Chase an Internet valuation, consider the following.

Only Fools Rush In

First, the bank's reliance on its investment portfolio is far heavier than that of the biggest tech firms, which are arguably better placed to make New Era investments. Chase's $1.3 billion VC gain accounted for a massive 39% of operating revenue in the fourth quarter and was four times the previous quarter's gain. At

Microsoft

(MSFT) - Get Report

, whose VC booty is also coming under investor

scrutiny, investment gains accounted for just 13% of revenue in the last quarter.

Plus, some observers wonder whether Chase booked such large VC gains because it knew a lackluster performance was in the offing elsewhere in the bank. This, for example, could push the bank to pressure some of its start-ups to go public before they're ready. Jeffrey Walker, head of CCP, said Wednesday that Chase doesn't do this: "We will not force a sale for a particular quarter's results."

But some analysts remain skeptical. Without the private equity gains, Chase's revenue "eked out only a 3% increase over last year's fourth quarter, suggesting Chase is increasingly dependent on the volatile high tech sector to fuel its growth," writes Kathy Shanley, an analyst at

Gimme Credit

, a research firm that doesn't do investment banking.

Nothing Ventured, Nothing Gained

Perhaps the most worrying aspect of venture capital investments is that they're hard to offload and hedge -- two drawbacks that could exacerbate the impact on Chase of a protracted tech selloff. Chase is subject to restrictions -- like so-called lockup periods -- on when it can sell its stakes in companies. In its bond business, by contrast, the bank has been free to nimbly exit a market it thinks is heading for a crunch. It can't do that anywhere near as quickly with Chase Capital Partners' investments. "This stuff is much less liquid," says Charles Peabody, banks analyst at

Mitchell Securities

, which rates Chase a sell and has done no investment banking for the institution.

Peabody also wonders whether Chase is able to properly hedge its CCP holdings. In theory, the bank may be able to hedge in size using the over-the-counter, or nonpublic, derivatives market. But it's a whole other question whether the companies CCP holds will approve of the bank taking positions that potentially benefit from their stocks' decline. Chase didn't immediately comment when asked if it hedges CCP positions.

And while all eyes are focused on the amazing fourth quarter, it should be remembered that Chase's VC revenue was only recently hit by the decline in one tech stock. In its third-quarter financial statement filed with the

Securities and Exchange Commission

, the bank says CCP gains would have been stronger if it weren't for "a decline in the market value of a large investment." Although the bank did not confirm it, this is widely thought to refer to

StarMedia

(STRM) - Get Report

, which plunged a bruising 43% in the third quarter. "That's a microcosm of what could happen if there were a break in the tech stocks," Peabody remarks.

Investors might be more reassured if the bank advised them on how much it may earn from its VC business. But at the Wednesday meeting, Chase execs refused to give even rough guidance. Chase said predictions were impossible given the market-related nature of the gains. But compare that with

Intel

(INTC) - Get Report

, another firm with a big VC unit, which says it generally gives guidance on what its investment income will likely be in its next quarter.