By DAN FITZPATRICK
J.P. Morgan Chase & Co. dampened the New Year rally for bank stocks, saying on Friday that its fourth-quarter profit fell 23% from a year ago amid a sharp slowdown on Wall Street.
![[Dimon]](http://sg.wsj.net/public/resources/images/HC-GH346_Dimon_BV_20080929184121.gif)
JAMES DIMON
The report is the latest troubling sign for large financial institutions preparing to report results in the coming weeks and a reminder of the bleak landscape for investment banking and trading businesses that these companies have come to depend on. The dour news came even as James Dimon, chief executive of the New York company, emphasized an increase in lending that points to a potential uptick in the economy.
Another lackluster season of earnings could test the durability of a run-up in bank stocks during the first two weeks of the year. Analysts have been slashing profit expectations for J.P. Morgan's rivals, including Goldman Sachs Group Inc. andMorgan Stanley, and shares of the largest six U.S. institutions fell Friday following J.P. Morgan's results. In 4 p.m. New York Stock Exchange composite trading, J.P. Morgan fell 93 cents, or 2.5%, to $35.92.
J.P. Morgan reported a 23% drop in fourth-quarter profit on a sharp drop in its investment-banking revenue, Matthias Reiker reports on Markets Hub. (Photo: Getty Images)
J.P. Morgan's fourth-quarter profit decline underscores how even the healthiest of banks is struggling with a slowing U.S. economy and tumultuous markets. It is the bank's second consecutive year-on-year drop in quarterly profit, the first time that has happened since the height of the financial crisis.
Earnings were $3.73 billion, or 90 cents a share, down from $4.83 billion, or $1.12 a share, a year earlier. Results were hurt by an accounting loss tied to the market for bank debt. Revenue dropped 17% to $22.2 billion, below analyst expectations.
What hurt J.P. Morgan and other big banks in the fourth quarter was a pullback on Wall Street, which had been a source of strength for J.P. Morgan earlier in the year but turned choppy as companies pulled back on plans to buy other companies, go public or issue new debt or equity amid the intensifying European credit crisis. The fees J.P. Morgan generated from investment banking fell 39% from the year-ago quarter to $1.1 billion, and revenue from fixed-income trading dropped 13%. Total revenue for the investment bank fell 30%, to $4.3 billion.
Markets reporter Brendan Conway joins the News Hub to discuss J.P. Morgan's 4th quarter earnings along with other factors influencing markets on Friday. AP Photo/Bebeto Matthews
Mr. Dimon attributed the investment bank's disappointing quarter to Wall Street volatility. "Forget about trading," he said on a conference call. "Volumes go up and volumes go down. It is not a mystical thing. It will come back."
Associated Press
J.P. Morgan Chase on Friday reported a drop in investment-bank earnings but strong lending business.
Mr. Dimon preferred to emphasize instead new signs of strength on Main Street. J.P. Morgan's results show that companies are taking on more credit to fund inventory and capital improvements. The bank's total loan book rose 4%, as lending to middle-market and corporate banking clients climbed 12% and loans retained by the investment bank were up 28%. Revenue and profit in J.P. Morgan's commercial-banking unit were up because of the new activity.
The loan demand is "everywhere," Mr. Dimon said. "Industrial, consumer, Asia, Latin America, trade finance, corporations, all types of corporations."
The bank's results also show U.S. consumers are defaulting less. Delinquency rates on loans fell across the board, especially in credit cards. As a result the bank was able to cut loan-loss reserves by $730 million, more than analysts expected. Profit in the bank's retail-services unit rose 16% to $533 million.
The positive signals from consumers and businesses indicate "we have a mild recovery that might actually be strengthening," Mr. Dimon said.
But a weak U.S. housing market continues to haunt J.P. Morgan and other big banks, acting as a drag on earnings. J.P. Morgan's mortgage business lost $258 million in the fourth quarter as compared to a $330 million profit a year ago.
Investors continue to ask J.P. Morgan and other banks to repurchase poor-performing mortgage securities issued in the run-up to the financial crisis, arguing the underlying contracts were faulty. Such demands leapt 44% at J.P. Morgan from the year-ago quarter, and the bank increased its litigation reserves by $528 million largely for mortgage-related matters. The bank faces a new legal challenge from several high-profile mortgage investors that previously wrested a proposed $8.5 billion settlement from Bank of America Corp.
Despite posting a 23% Q4 earnings decline, WSJ's FINS reporter Julie Steinberg checks in on Mean Street to point out the company plans to undergo employment growth in 2012. Photo: AP.
"We are getting killed in mortgages if you haven't noticed," Mr. Dimon said on a call.
The CEO said he expects the U.S. housing market to "turn" soon but it is hard to know if that will be three, six or nine months. "It is getting closer."
The bank didn't detail its exposure to troubled European countries as part of Friday's results, though Mr. Dimon said a previous figure of $15.9 billion hadn't changed much. The CEO had praise for the European Central Bank's recent efforts to provide more liquidity to troubled institutions, but he said a lack of coordination between regulators and governments is making the situation "worse, not better."
"Nobody is in charge of the global financial system. … It is not a way to get a recovery going."
—David Benoit and Matthias Rieker contributed to this article.
Write to Dan Fitzpatrick at dan.fitzpatrick@wsj.com
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