Dismay Over JPMorgan, Despite A Record Year

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Americans are still losing their homes and falling behind on -- or simply not paying -- their credit card debt. That was the dismal reading investors got from this morning's JPMorgan Chase (JPM) fourth-quarter and full-year results. Sure, JPMorgan's results for 2009 were remarkable: It earned $11.7 billion on record revenue of $108.6 billion for the year. In the fourth quarter, its net income of $3.3 billion was up dramatically from the $702 million it earned in the same period of 2008. "We are gratified," says CEO Jamie Dimon.And yet despite these rosy numbers, there was little to cheer about. Reflecting that, JPMorgan stock is off 73 cents, or 1.6%, to $43.99 in mid-morning action. Fewer paychecks are coming into people's pockets each week as the country's unemployment rate remains elevated, now 10%, and it's clearly hurting Americans' ability to meet loan obligations. Customers who were late paying outstanding balances on their Chase credit cards by 30 days ("delinquencies") went up to 6.28% from 5.99% in the previous quarter. And those who were 90-days late or more -- at which point many banks consider the delinquency a write-off -- rose to 3.59% from 2.76%.

An increasing number of people also couldn't make home loan payments. In the fourth quarter, prime mortgage loans recorded a loss of $568 million, up from $525 million in the previous quarter. The bank charged off subprime home loans totaling $452 million, compared to $422 million. Home equity loans recorded losses of $1.17 billion, up from $1.14 billion in the third quarter.

"We Remain Cautious"


The bank also indicated that the bleeding will likely continue in the near future and set aside $1.9 billion for future loan losses, increasing the total reserves for expected loan losses to $32.5 billion. Dimon says the bank is closely watching for signs of improvement in the economy, but "consumer credit costs remain high, and weak employment and home prices persist. Accordingly, we remain cautious."

JPMorgan's investment banking unit did rake in more fees than any other Wall Street firm, putting it in first place and earning $6.89 billion in 2009, compared to a loss of $1.17 billion in 2008. However, trading of fixed-income and currency products slowed in the fourth quarter, and the division couldn't keep pace with the third-quarter's record $7.5 billion revenue. It posted revenue of $4.9 billion for the quarter.

Bankers in this unit take home the largest paychecks, and this year JPMorgan has set aside $26.9 billion to compensate all its workers. Its investment bankers will get $9.3 billion of that, up from $7.7 billion in 2008. While several bankers will still land multimillion dollar payouts, JPMorgan did bow a little to pressure from Washington. It reduced its compensation amount as a percent of revenue for this unit to 33% from 62% in the previous year. In a conference call with analysts, Dimon said that a larger portion of their compensation this year is also tied to stock rather than cash.

Who You Gonna Call?

Some Wall Street analysts like Citigroup's (C) banking analyst Keith Horowitz believes that JPMorgan's investment banking results could decline in coming months as it loses its "competitive advantage" -- its strong balance sheet -- as the financial markets stabilize further.

However, Jamie Cox, managing partner at Harris Financial Group, says corporations don't have much of a choice about who to do business with on Wall Street anymore. "The universe of investment banks has shrunk so much," says Cox, "that the choices are limited, and most clients would want to work with the cream of the crop, like JPMorgan."
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