JPMorgan Fourth-Quarter Earnings Fall, Miss Estimates (

This thing keeps getting worse from Bloomberg

JPMorgan Fourth-Quarter Earnings Fall, Miss Estimates (Update1)

By Elizabeth Hester

Jan. 16 (Bloomberg) – JPMorgan Chase & Co., the third- biggest U.S. bank, said profit fell 34 percent, more than analysts estimated, after $1.3 billion of writedowns for subprime-mortgage investments.

Fourth-quarter net income declined to $2.97 billion, or 86 cents a share, from $4.53 billion, or $1.26, a year earlier, the New York-based company said today in a statement. Seventeen analysts surveyed by Bloomberg estimated profit of 92 cents.

The drop was the first since Jamie Dimon became chief executive officer in 2005. JPMorgan’s writedown compared with the $18.1 billion announced by Citigroup Inc. yesterday as the bank invested less in subprime mortgages and instead relied on fee- based businesses such as retail banking. Earnings at the consumer-banking unit rose 5 percent.

We remain extremely cautious as we enter 2008,'' Dimon said. If the economy weakens substantially from here – for which, as a company, we need to be prepared – it will negatively affect business volumes and drive credit costs higher.‘’

The company added $2.3 billion to credit reserves, bringing the total to $10 billion, Dimon, 51, said. JPMorgan’s Tier 1 capital ratio, which regulators monitor to assess banks’ ability to withstand loan losses, remained unchanged from the third quarter at 8.4 percent.

Revenue rose 7 percent to $17.4 billion, compared with the average estimate of $17.2 billion in the Bloomberg survey. Last year’s fourth-quarter earnings included a one-time gain of $622 million.

Investment Banking

Net income at the investment-banking division tumbled 88 percent to $124 million in the fourth quarter and profit from card services fell 15 percent to $609 million, the company said. The retail bank’s profit climbed to $752 million from $718 million, driven by increases in mortgage banking.

Return on equity from continuing operations, a gauge of how effectively the company reinvests earnings, was 10 percent, compared with 14 percent a year earlier.

JPMorgan lost 18 percent of its market value in the past 12 months, compared with 50 percent at New York-based Citigroup and 29 percent at Charlotte, North Carolina-based Bank of America Corp. The stock rose to $39.90 in early trading from $39.17 at the close on the New York Stock Exchange yesterday.

Rating Downgrade

Deutsche Bank AG analyst Michael Mayo reduced his rating on JPMorgan to hold'' from buy’’ yesterday ``due to accelerating problems in U.S. consumer banking.‘’ Losses from credit cards and mortgages are increasing as the global economy slows. Citigroup said yesterday its record $9.83 billion loss was due in part to an increase in provisions for losses on auto and credit-card loans.

``We feel that JPMorgan cannot escape tougher external conditions,‘’ Mayo wrote in his research note.

Richard Bove, an analyst at Punk Ziegel & Co. in Lutz, Florida, said JPMorgan may capitalize on its relative success in protecting its capital by purchasing another bank. Bove pointed to Seattle-based Washington Mutual Inc., the biggest savings and loan, as one possibility.

JPMorgan arranged $170 billion of loans used to finance leveraged buyouts in the U.S. last year, more than any bank and representing 16 percent of the market, according to data compiled by Bloomberg. The company was also the largest underwriter of U.S. high-yield corporate debt, with $20 billion in 2007.

The fourth quarter may be the worst earnings period for the financial industry since the Great Depression. Analysts estimate Merrill Lynch & Co., the biggest U.S. brokerage, will report a record loss tomorrow of more than $3 billion after writing down the value of mortgage-related securities. Bank of America, the second-largest U.S. bank by assets after Citigroup, may report its biggest profit decline since its formation in 1998 from the merger of BankAmerica and NationsBank.

To contact the reporter on this story: Elizabeth Hester in New York at ehester@bloomberg.net .

Last Updated: January 16, 2008 07:39 EST