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J.P. Morgan's earnings bode ill for industry, economy
Friday, 15 January 2010
By Matthew Quinn
It's not often that an economic bellwether posting blowout earnings heightens economic fears. But that's what happened Friday with J.P. Morgan Chase.
The bank earned $3.3 billion in the fourth quarter, up from $702 million a year earlier. However, increased provisions for loan losses in its retail portfolio overshadowed the headline numbers.
J.P. Morgan added $1.9 billion to consumer loan loss reserves, resulting in firm-wide credit reserves of $32.5 billion and loan loss coverage ratio of 5.5 percent.
The results give everyone pause because J.P. Morgan is considered best in breed among the big money center banks. So if there is trouble in its portfolio, hold on tight for what's ahead with Citigroup and Bank of America.
But J.P. Morgan's results show that while large banks can post big profits just a year after receiving massive government bailouts, there are still plenty of stumbling blocks for the economy as a whole.
In its retail financial services division, which includes retail banking and consumer lending, the provision for credit losses was $4.2 billion, an increase of $653 million from the prior year and $241 million from the prior quarter.
"Weak economic conditions and housing price declines continued to drive higher estimated losses for the mortgage and home equity portfolios," the company said.
The provision included an addition of $1.5 billion to the allowance for loan losses, compared with additions of $1.9 billion in the prior year and $1.4 billion in the prior quarter, showing expectations of future losses remain elevated.
"I don't think we can take away from these results that we are any further along in the (economic) recovery than we thought we were," David Dietze, chief investment officer at Point View Financial Services, told Reuters.
In its credit card division, the net charge-off rate hit 9.33 percent for the quarter, up from 5.56 percent a year earlier, but down from 10.30 percent in the prior quarter.
Fitch Ratings said last week that credit card delinquencies in December reached a record level of 4.54 percent and charge-offs hit 10.68 percent, up from 10.09 percent the previous month. The charge-off rate remained below its high of 11.52 percent set in September 2009.
"U.S. consumer credit quality remains under considerable stress due to persistently weak labor market conditions," said Fitch managing director Michael Dean. "As a result, charge-offs will retest their recent highs throughout the first half of 2010."
JPMorgan Chase & Co
Reflecting that, Bank of America on Friday said its charge-off rate
rose last month to 13.53 percent from 13.00 percent in November, reversing a
three-month decline, Reuters reported. Capital One said its annualized charge-off
rate for U.S. credit cards rose to 10.14 percent in December from 9.60 percent
in November.
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