Q4 Earnings: JPMorgan Profits Down 23%; Asset Management Off 40%

Low trading revenues, tight credit and Europe crisis bode ill for banking sector’s Q4 2011

JPMorgan Chase CEO Jamie Dimon (Photo: AP) JPMorgan Chase CEO Jamie Dimon (Photo: AP)

As the fourth-quarter 2011 earnings season begins, JPMorgan Chase & Co. (JPM) met analysts’ expectations by reporting profits that were down for the quarter but up for the year. The J.P. Morgan Asset Management unit contributed to the disappointing results, reporting a 40% drop in income.

The national banking giant posted quarterly profits of just 90 cents a share, earning $3.7 billion, which was 23% lower than the $1.12 in earnings per share that JPM reported in Q4 2010. Yearly profits were up 9% to $19 billion from $17.4 billion a year ago, and last year’s performance represented a whopping 47% boost in earnings over Q4 2009, thus representing a positive shift in the finance sector’s fortunes after a rough couple of years.

Typically, JPMorgan’s quarterly results set the tone for the entire banking sector’s performance. In the weeks to come, Bank of America, Citigroup and Wells Fargo are slated to report earnings, and expectations are low. Last year was not a good one for big banks, and Q4 2011 is expected to be especially disappointing due to low trading revenues, tight credit conditions and the looming specter of Europe’s banking crisis.

Net income in Asset Management was $302 million, a decrease of $205 million, or 40%, from the prior year. The bank said these results reflected lower net revenue, partially offset by lower noninterest expense. Asset Management net revenue was $2.3 billion, a decrease of $329 million, or 13%, from the prior year. Revenue from Private Banking was $1.2 billion, down 12% from the prior year.

“Noninterest revenue was $1.8 billion, down by $394 million, or 18%, due to lower performance fees, lower loan-related revenue, the effect of lower market levels and lower valuations of seed capital investments,” according to JPMorgan in its Q4 2011 earnings release. “Net interest income was $446 million, up by $65 million, or 17%, due to higher deposit and loan balances, partially offset by narrower deposit spreads.”

On the plus side, Asset Management added 160 private bank client advisors in 2011. Further, of the $545 billion in credit that JPMorgan loaned out to businesses in 2011, 28% higher than in 2010, $100 billion went to Asset Management clients, up 48%.

Assets under supervision totaled $1.9 trillion, an increase of $81 billion, or 4%, while assets under management totaled $1.3 trillion, an increase of $38 billion, or 3%, from the prior year. Both increases were due to

net inflows to long-term and liquidity products, partially offset by the impact of lower market levels. Custody, brokerage, administration and deposit balances were $585 billion, up by $43 billion, or 8%.

The Investment Bank continued to rank No. 1 in Global Investment Banking Fees for 2011, although quarterly profits were off 56%, at $726 million versus $1.6 billion in Q3. In comparison, fourth-quarter 2010 Investment Bank profits totaled $1.5 billion.

Chief Executive Jamie Dimon used the earnings release as a forum to talk about how much money the bank is lending to businesses and consumers–hoping, perhaps, to downplay the bank’s disappointing financial performance.

"The firm's returns on tangible common equity for the fourth quarter of 2011 and the full year 2011 were 11% and 15%, respectively. We believe these returns were reasonable given the environment, although the return for the fourth quarter was modestly disappointing,” Dimon acknowledged in a statement.

The markets’ low-yield environment hit the bank with tighter credit spreads, which were reflected in a $567 million pretax debit valuation adjustment loss.

Read about JPMorgan’s quarterly earnings from a year ago at AdvisorOne.

See AdvisorOne's Q4 earnings calendar for the financial sector.

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