JP Morgan (
) reported Q4 2010 net income of $4.8 billion, an increase of 47%
compared to Q4 2009. For the full year 2010, net income was $17.4
billion, an increase of 48% compared to the previous year.
Supporting the rise in net income was $7 billion in reserves to
cover debts which were added back to earnings on better economic
forecast. Its main competitors are Bank of America (
), Goldman Sachs (
), Morgan Stanley (
) and Citigroup (C).
JP Morgan reported improvements across the board with credit
cards generating 27% of JP Morgan's net income for the quarter
after losing money through 2009. T he investment bank accounted for
31% and ranked #1 in global investment banking fees for the year
2010 while Mortgage Banking & Other Consumer Lending
reported net income of $577 million, an increase of $311
million, or 117%, from the prior year.
Commercial banking was also strong and reported net income of
$530 million for the quarter, an increase of 137% from the previous
year. The increase was driven by a reduction in the
provision for credit losses and higher net revenue.
Lower Provisions and Delinquencies for Cards Chipped
Card service is the second largest profit driver for JP Morgan and
constitutes about 18% of its stock value. Card services reported
$1.3 billion net income for Q4 2010 compared with $306 million loss
a year earlier. Notably, the 30-day delinquency rates dropped to
4.1% from 6.3% in the same quarter in 2009 and 4.6% in the third
quarter. A fall in delinquency rates indicate that fewer customers
fewer customers fell behind on their credit card payments in the
fourth quarter. The rate of credit cards charged off as bad debt
also fell to 7.8% from 9.3% the prior year and 8.9% in the previous
quarter. This resulted in a release of $2 billion in reserves
against credit card loans which boosted profits for JP Morgan.
A decline in provisions for potential losses and lower
delinquency rates and charge offs has resulted in a improvement of
operating margins for the card service division from -14% in 2009
to an estimated 14% in 2010. A continuation of this trend could
boost profit margins up to 50% by 2012 ahead of our estimate of
about 26% in 2012. This would result in about 5-6% upside to our
price estimate for JP Morgan's stock.
See our full estimates here.