January 14, 2011

2010 Q4 Earnings: JPMorgan Profits Surge 47%, Beating Forecasts

Bank kicks off earnings season with talk of higher dividend; private banking has record revenues

JPMorgan Chase & Co. (JPM) kicked off the finance sector’s fourth-quarter 2010 earnings season on Friday with a stellar report showing the bank’s quarterly profits at $4.8 billion, up 47% over the prior year.

Earnings per share came in at $1.12 compared with $0.74 for fourth-quarter 2009, according to the bank’s news release. The performance easily beat analysts’ expectations for EPS of $0.99, and JPMorgan management said the bank hopes to increase its dividend due to strong capital generation.

For the full year, JPMorgan reaped profits of $17.4 billion, up 48% over 2009, on revenues of $104.8 billion, putting EPS at $3.96 versus $2.26 in 2009.

JPM stock after the earnings release was up $1.18 per share in early trading, or 2.63% higher at $45.63 versus Thursday’s close at $44.45.

The bank credited a better consumer lending environment for its earnings success along with solid investment bank results, record commercial banking revenue and more than 1.5 million new checking accounts opened in 2010. However, the bank’s retail banking income fell 21% from 2009 as JPMorgan’s loan balances shrink.

The Asset Management unit contributed significantly to the results, with record long-term net inflows of $69 billion of assets under management in 2010; net outflows for the year totaled $20 billion. Profits for the unit, which includes the company's private banking, private wealth management and JPMorgan Securities operations, increased 20%, or $83 million, from the fourth quarter of 2009, with net income totaling $507 million. The results in Asset Management

reflected higher net revenue of a record $2.6 billion, an increase of $418 million, or 19%, from the prior year.

Assets under supervision were $1.8 trillion, up 8%, or $139 billion, from the fourth quarter of 2009. Revenue from Private Banking was $1.4 billion, up 18%.

“Solid performance in the quarter and for the year reflected good results across most of our businesses, which benefited from strong client relationships and continued investments for growth,” said Chairman and CEO Jamie Dimon in a statement.

However, Dimon conceded, the troubled U.S. housing market continues to be a drag on performance.

“Credit trends in our credit card and wholesale businesses continued to improve. In our mortgage business, while charge-offs and delinquencies have improved, credit costs still remain at abnormally high levels and continue to be a significant drag on our returns,” he said.

Since well before the 2008 financial crisis hit, Dimon has been known to insist on maintaining a “fortress balance sheet” designed to shore up the bank’s strengths. This quarter, JPMorgan reported core capital of $115 billion, or 9.8%, credit reserves of $33 billion, and a loan loss coverage ratio at 4.5% of total loans.

Equity analysts at Keefe, Bruyette & Woods said there was “much to like” about the results, writing in a flash note that the quarter was a strong one for JPMorgan, including a 5% pickup in core revenues.

Raymond James analyst Anthony Polini said in a note written three days ahead of the earnings release that the odds strongly favored the company beating its $0.96 EPS estimate due to lower-than-expected credit costs.

Polini reiterated Raymond James’s Strong Buy rating on JPM and $58.00 target stock price.

“The Fed’s stress-tests are underway and we expect positive guidance on the timing of a dividend increase. Previous commentary suggests sometime in Q1 2011,” Polini wrote.

Read about JPMorgan’s Q3 2010 earnings at AdvisorOne.com.

Read AdvisorOne's 2010 Q4 earnings calendar for the financial sector for release dates and links to earnings stories.

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