JPM Misses Q4 Revenue, EPS In Line, DVA Loss Of $567 MM, Big Drop In Investment Banking

If JPM, which just launched the financials earnings onslaught by first reporting Q4 results, is any indication, it will not be pretty for the financial sector which has seen dramatic moves higher in the past several weeks, because as Jamie Dimon says, Q4 was "Modestly Disappointing." The reason: a top line miss, and a continuing contraction in capital markets leading to yet another decline in Investment Banking results. Also, what DVA giveth, DVA taketh away, and with CDS tightening in the quarter, DVA resulted in a $567 million loss in the quarter. Yet even with the DVA impact exclusion, revenue, which was reported at $21.47 billion would still have missed estimates of $22.56 billion. Finally, what would a quarter be if a bank did not reduce its loan loss allowance and release even more reserves, no matter how the market is actually doing: JPM did just that in its mortgage banking division, lowering its net loan loss allowance by $230 million following a $1 billion allowance reduction in loan-losses offset by actual impairments of $770 million. Stock is down following the release.

Among the highlights:

  • Basel I Tier 1 common of $123 billion, ratio at 10%; Basel III Tier 1 at 7.9%
  • Loan loss coverage ratio at 3.35% of total loans
  • Investment Bank revenue: $4.4 billion, down $2 billion from Q3, and down $1.9 billion from a year prior
  • Of which Fixed Income market revenue down $645 million to $779 sequentially, $349 Y/Y
  • $2.9 billion in charge offs in Q4, down 43% compared to prior year

Comments from Dimon:

“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. Several significant items affected the Firm’s fourth-quarter results, including a $567 million pretax DVA loss which reflected the tightening of the Firm’s credit spreads. As we have consistently said, whether positive or negative, we do not consider DVA reflective of the underlying operations of the company.”

 

“We were pleased that the Investment Bank continued to rank #1 in Global Investment Banking Fees for 2011. Consumer & Business Banking opened 260 new branches and increased deposits by 8% in 2011. In our Card business, credit card sales volume2 was up 10% for 2011. Treasury & Securities Services reported record deposits2, up 28% for 2011. Commercial Banking reported record deposit2 balances, up 26%, and record net income for 2011.”

 

Dimon added: “As the economy continues to recover, we are gratified to see signs of improvement in loan demand and credit quality. Commercial Banking had its sixth consecutive quarter of loan growth, including a 17% increase in middle-market loans over the prior year. In Treasury & Securities Services, trade loans were up 73% over the prior year. Business Banking loans were up 5% over the prior year reflecting a 24% increase in origination volume during 2011. Mortgage originations through the Firm’s retail channel were strong. Finally, the Card business had continued loan growth in the fourth quarter as the Chase credit card portfolio1 ended the year with outstandings of $120.0 billion.”

 

“Firmwide, net charge-offs were $2.9 billion in the fourth quarter, down 43% compared with the prior year, and nonperforming assets declined by 33%. Mortgage net charge-offs and delinquencies modestly improved, but both remained at elevated levels. With respect to our credit card portfolio, the net charge-off rate1 improved to 3.93%, down from 4.34% in the prior quarter and 7.08% in the prior year. Wholesale credit performance remained stable.”

 

Commenting on the balance sheet, Dimon said “We maintained our fortress balance sheet, ending the year with a strong Basel I Tier 1 Common1 ratio of 10.0%. Our capital position allowed us to repurchase $9 billion of common stock2 during 2011, including $950 million during the fourth quarter. We estimate that our Basel III Tier 1 Common1 ratio was approximately 7.9% at the end of the fourth quarter. Our total firmwide credit reserves were $28.3 billion, resulting in a firmwide coverage ratio of 3.35% of total loans1. The Firm’s total deposits increased to $1.1 trillion, up 21% compared with the prior year.”

 

Dimon concluded: “I am proud of the work our 260,000 employees have done this past year to continue the Firm's 200-year tradition of showing leadership and responsibility during challenging times. JPMorgan Chase has a positive impact on the lives of millions of people and the communities in which they live. All of the Firm’s accomplishments and our success in the future rest on a foundation of capital strength and careful stewardship of the Firm through this challenging economy and a new, complex regulatory environment. We are working hard to help our clients thrive, economies grow and communities prosper.”

JPM's Investment banking summary results:

Full earnings presentation

JPM Q4 Pres