Colin Barr

Following the money in banking, economics, and Washington

JPMorgan profit surges despite mortgage hit

January 14, 2011: 7:16 AM ET

JPMorgan Chase posted a stronger-than-expected fourth-quarter profit, even as it bolstered its reserves for mortgage-related legal expenses for the second straight quarter.

The New York-based bank made $4.8 billion, or $1.12 a share, for the latest quarter. That is up from a profit of 74 cents a share a year earlier and compares with the Wall Street analyst consensus estimate of 99 cents a share.

Dimon shining, etc.

JPMorgan (JPM), the No. 2 U.S. lender by assets after Bank of America (BAC), said the latest quarter's profit was boosted by its decision to release $3 billion in loan loss reserves on its card services and non-impaired loan portfolios. Offsetting those gains, the bank added $2 billion to its reserves for impaired loans acquired in the 2008 acquisition of Washington Mutual, and boosted its litigation reserves by $1.5 billion.

All told, the one-time items tied to reserve changes and securities gains boosted latest-quarter profits by 12 cents a share -- accounting for the lion's share of the margin by which JPMorgan's profit beat analyst estimates.

"Credit trends in our credit card and wholesale businesses continued to improve," CEO Jamie Dimon said in a Friday morning press release. "In our mortgage business, while charge-offs and delinquencies have improved, credit costs still remain at abnormally high levels and continue to be a significant drag on our returns."

JPMorgan shares have been flat for the past year after far outperforming most other banks during the financial meltdown of 2008 (see chart, right). They were flat at $44.45 in premarket trading.

The report comes as investors mull over a tightening bank profit picture. JPMorgan and rivals such as Wells Fargo (WFC) and Citi (C) have padded their bottom lines in recent quarters by releasing loan loss reserves they took during the financial meltdown back into earnings.

But Wall Street has taken to focusing on what the banks will look like a year or two down the road and how they might change. Among other challenges, the banks must replace lost profit centers such as the credit and debit card fees they used to such great effect in recent years to gouge their hapless customers.

Analysts will be listening in on JPMorgan Chase's call, beginning at 9 a.m. EDT, for Dimon's take on that and other issues, including his latest comments on when the bank might get clearance to start paying a bigger dividend.

"Incremental guidance on how banks plan to navigate the current challenges, including the low interest rate environment, slow loan growth and the negative effects of regulatory reform, will be the focal points in the quarter," Credit Suisse analyst Moshe Orenbuch wrote this week in a note to clients. "Any additional details as to potential re-pricing efforts, product innovation or offsets, particularly in consumer related businesses, would be an incremental positive."

Among the key issues in the call will be the bank's decision to add $1.5 billion to its litigation reserves, in a move JPMorgan said was "predominantly for mortgage-related matters." Dimon previously shrugged off the mortgage putback crisis in October's earnings announcement even as the bank added $1 billion to those reserves.

Join the Conversation
About This Author
Colin Barr
Colin Barr
Senior Writer, Fortune

Colin Barr has covered finance for Fortune.com since November 2007. Previously he was a writer and editor for TheStreet.com, winning a 2006 Society of American Business Editors and Writers award for "The Five Dumbest Things on Wall Street," and for Dow Jones Newswires. He is a 1991 graduate of Penn State and lives in Port Washington, N.Y., with his wife Meena Bose and their two kids.

Email Colin
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.