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Dow 30 Earnings: JPMorgan Chase & Company – Fourth Quarter 2010
JPMorgan Chase (JPM - Free JPMorgan Chase Stock Report), one of the largest banks in the U.S., turned in a decent performance in the fourth quarter. The company reported earnings of $1.12 a share for the December period and $3.96 for all of 2010, up nicely from the $0.74 recorded in last year's fourth quarter and the full-year $2.24 tally. Results for the 2010 quarter and year also exceeded our share-net estimates of $0.96 and $3.80, respectively. Earnings in the December term were increased by a net $0.12 a share of items that don't occur on a regular basis, but are the result of operating decisions. These included additions to reserves for loans added in the Washington Mutual acquisition and for mortgage-related litigation, which were more than offset by a $2 billion-reduction in the credit card division's loan loss reserve and by securities gains.
The company has continued to make progress on several fronts, but still faces another challenging year in 2011. Investment banking revenue remained strong. In the commercial banking segment, JPMorgan said it is seeing the beginnings of a pickup in loan demand from mid-sized companies. Loan losses and delinquencies continued to decline, particularly in the credit card business. If the trend continues, further reductions in the loan loss reserve may be possible. And the company believes it now is adequately reserved for losses related to repurchasing mortgages from government sponsored mortgage entities like Fannie Mae.
But some headwinds in the year ahead include increasing competition in the investment banking business, as evidenced by the declines in JPMorgan's market-share rankings in 2010. Also, credit costs in the mortgage business will probably remain high for some time. The further runoff of Washington Mutual's loans may offset new loan generation in the next couple of quarters. Moreover, declines in the investment securities portfolio and the currently very low interest rates will probably continue to pressure net interest income this year. In all, we prefer to err on the conservative side and still look for earnings of about $4.50 per share in 2011.
The company expects bank regulatory agencies to clarify guidelines regarding how much equity capital banks must maintain toward the end of the March quarter. At that time, JPMorgan hopes to receive permission to increase the dividend on its common stock, which it reduced in 2009. Its performance during the past few difficult years has been generally better than most of the banking sector, and we think the company will be one of the first of the group to receive permission to increase the payout. We don't expect the dividend to be restored to the 2008 level for several years, however. In all, patient investors may want to consider the stock for its good total-return potential to mid-decade.
About The Company: JPMorgan Chase & Co. is a global financial services firm offering a variety of services with operations in over 50 nations. At the end of the first quarter of 2010, there were about 5,155 JPMorgan offices worldwide. Operational divisions include investment banking, treasury & securities services, asset management, commercial banking, retail financial services, card services, and private equity investment. The company had previously merged with Washington Mutual in September, 2008, Bank One in July, 2004, and Chase Manhattan in the final month of 2000.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.