JPMorgan Chase & Co reported deep losses on mortgage and credit card loans in the fourth quarter, damping hopes that consumer credit is on the mend.
Strong investment banking results helped quarterly profit soar to US$3.3 billion, topping Wall Street expectations. But analysts had been hoping for signs that the bank’s credit costs were leveling off or even starting to fall, particularly for consumer loans.
“Consumer credit may be close to a bottom here, but it’s not getting better, and people wanted JPMorgan to say it’s getting better,” said Ralph Cole, portfolio manager at Ferguson Wellman Capital Management, which owns JPMorgan shares.
Losses at the second-largest US bank were in line with typically cautious guidance the bank had given in recent months but its projections for this year were hardly any more sunny.
“We don’t know when the recovery is,” chief executive Jamie Dimon said during a conference call with investors.
JPMorgan is the first of the major banks to report fourth-quarter numbers and its results may bode ill for competitors.
The New York-based bank’s overall quarterly profit amounted to US$0.74 a share, beating analysts’ average estimate of US$0.61, according to Thomson Reuters I/B/E/S. Year-earlier earnings were US$702 million, or US$0.06 a share.
Revenue, excluding the impact of assets that have been packaged into bonds and largely sold to investors, totaled US$25.2 billion, falling short of analysts’ average forecast of US$26.8 billion.
JPMorgan shares were down 1.7 percent to US$43.90 in afternoon trading. Shares of other major banks were also lower, weighing on the broader market.
“The logic is, as goes JPMorgan, so goes the rest of the banks,” said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati.
The bank’s large mortgage and credit card businesses have seen rising credit costs in the last year, offset only by record investment banking revenue.
Losses even on prime mortgages almost tripled to US$568 million compared to a year earlier. The bank set aside a total of US$4.2 billion to cover mortgage, home-equity and other consumer loan losses in the fourth quarter, up US$653 million from the same quarter a year earlier.
To be sure, total credit losses excluding the impact of securitizations actually slipped to US$7.8 billion from a high of US$8.1 billion in the third quarter.
But much of that decline is because of a reduction in credit card losses related to a May offer allowing card customers to defer payments for a month. That deferral slowed the pace at which customers were delinquent at the end of last year, and pushed some customer defaults into the first quarter of this year. Total credit losses were up 72 percent from the fourth quarter a year earlier.
“JPMorgan is the bellwether, it is the best, most well-capitalized, best-managed bank,” said Jamie Cox, managing partner at Harris Financial Group in Colonial Heights, Virginia. “You would hope they’d be the first bank to be able to begin the process of paring down loan loss reserves.”
JPMorgan’s credit losses could indicate further trouble for Citigroup Inc, which reports quarterly results on Tuesday, and Bank of America Corp, which reports on Wednesday. Both banks have large consumer exposure. Bank of America shares fell 3 percent to US$16.31, while Citi shares fell 1.4 percent to US$3.46.
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