JPMorgan Chase & Company
) fourth quarter earnings per share of 90 cents marginally missed
the Zacks Consensus Estimate of 92 cents. Results were worse than
$1.12 earned in the prior-year quarter.
Earnings per share for the reported quarter included certain
significant nonrecurring items, such as a 9 cent loss from debit
valuation adjustment (
) gains in the Investment Bank, expense for additional litigation
reserves of 8 cents and a benefit from reduced loan loss reservesof
11 cents. Excluding these items, JPMorgan's earnings came in at 96
cents per share.
Results for the reported quarter were primarily hurt by a
substantial decrease in revenue, which more than offset a slowdown
in provision for credit losses and lower non-interest expense.
After a long time, JPMorgan missed expectations as it buckled
under the weakness in the wider economy and the fundamental
pressures on the banking sector.
Investment banking results, excluding the DVA gain, witnessed a
drastic deterioration from the prior-year quarter due to lower
revenue and higher provision for credit losses. However, with a
healthy market share, the segment maintained its #1 rank in Global
Investment Banking Fees.
Retail Financial Services and Commercial Banking divisions
demonstrated good underlying performances, with solid revenue and
earnings. However, despite an expansion in credit card sales
volume, the overall performance of the Card business was not up to
the mark. Treasury & Securities Services reported record
deposit balances during the quarter.
For the full year, earnings came in at $4.48 per share, also
falling shy of the Zacks Consensus Estimate of $4.51. This,
however, compared favorably with earnings of $3.96 in the previous
Quarter in Detail
Managed net revenue of $22.2 billion in the quarter was down 17%
from the year-ago quarter. The figure also compares unfavorably
with the Zacks Consensus Estimate of $23.0 billion. For the full
year, revenue was $99.8 billion, down 5% from $104.8 billion in
2010. However, this compares favorably with the Zacks Consensus
Estimate of $99.2 billion.
Managed non-interest revenues decreased 32% from the year-ago
period to $9.9 billion. The decrease was a result of lower
securities gains, lower principal transactions revenue, lower
mortgage fees and related income and lower investment banking fees,
partially offset by higher lending and deposit-related fees.
However, net interest income was flat with the year-ago quarter at
Non-interest expenses were $14.5 billion, down 9% from the
year-ago quarter. The decline was primarily due to lower
Managed provision for credit losses decreased 28% from the
year-ago quarter to $2.2 billion. Total consumer provision for
credit losses was $1.8 billion, down 42% from $3.1 billion in the
year-ago quarter. This reflects improved delinquency trends across
most consumer portfolios compared with the prior-year quarter.
JPMorgan's credit quality showed a decent improvement during the
quarter. As of December 31, 2011, non-performing assets were $11.0
billion, down from $12.2 billion in the prior quarter and $16.6
billion in the prior-year quarter. Consumer net charge-offs
decreased to $2.6 billion from $4.8 billion in the prior-year
quarter. As a result, the consumer net charge-off rate improved to
2.74% from 4.89% in the year-ago quarter.
JPMorgan maintained a strong capital position with Basel I Tier
1 common ratio of 10.0% as of December 31, 2011, up from 9.9% as of
September 30, 2011 and 9.8% as of December 31, 2010.
Book value per common share was $46.59 as of December 31, 2011,
compared with $45.93 as of September 30, 2011 and $43.04 as of
December 31, 2010.
For the last couple of quarters, JPMorgan has not been
delivering exceptionally as it is wont to given the economic
weakness at large and the fundamental pressures on the banking
sector. The sector was fraught with poor revenue figures, weak loan
demand and low liquidity throughout the second half of 2011.
Among the fundamental challenges, JPMorgan has been fighting
with poor capital market revenues, weak loan demand, low liquidity
and a tough regulatory environment. But we do not have an inkling
of doubt on the trustworthiness of the stock, given the company's
past consistency in earnings performance and high dividend-yielding
Most importantly, despite the macro pressure on credit quality,
JPMorgan's credit metrics have been steadily improving since the
final quarter of 2009. Though provision continued to reflect
heightened losses in the mortgage and home equity portfolios, we
are impressed to see a modest improvement in delinquency trends and
net charge-offs. We expect the trend of improving credit quality to
continue, providing more room for bottom-line improvement.
Though there are increasing concerns related to the European
economy, equity-centric activities in the U.S. are expected to
support JPMorgan's results in the upcoming quarters with continuous
recovery in the capital markets.
Moreover, net interest margin (
) continues to remain under pressure, affecting the traditional
banking businesses. Also, with the thrust of new banking
regulations, there will be pressure on fees and loan growth could
An investor with the appetite to absorb risks related to market
volatility should not be disappointed with an investment in
JPMorgan over the long haul. Though the stock is not at all
undervalued, JPMorgan's fundamentals remain highly promising with a
diverse business model and a strong balance sheet.
JPMorgan shares maintain a Zacks #3 Rank, which translates into
a short-term Hold rating. However, considering the company's
business model and fundamentals, we have a long-term Neutral
recommendation on the stock.
Following the announcement of fourth quarter results, the stock
was down about 4.3% in before-market trade.
Given that JPMorgan is a banking behemoth with significant
exposure in almost all banking businesses and the first among the
other important bankers to flag off fourth quarter results, the
release is going to be a significant indicator of performance in
the key banking sector.
Close on the heels of JPMorgan, the other major banks, namely
Wells Fargo & Company
), are scheduled to report on January 17, while
Goldman Sachs Group Inc.
) will report on January 18 and
Bank of America Corporation
) on January 19.
BANK OF AMER CP (
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