JPMorgan Chase & Co. the mega investment bank had a rough fourth quarter. JPMorgan Chase the sprawling loan-and-deposit operation had a fairly good one.
That may be bad news for JPMorgan Chase in the eyes of stock market types, but positive for other U.S. banks, almost none of which are as deeply involved in both Wall Street and Main Street banking as the country's biggest bank by assets.
Things are looking up for banks and the economy, argued Jamie Dimon, the New York company's chairman and chief executive, in discussing quarterly results that he described as "modestly disappointing."
Though trading and mortgage woes sapped overall profits, he noted that the $2.3 trillion-asset company's traditional banking operations made substantially more loans to hospitals, universities and other businesses. Credit card customers ran up higher balances, he said, and fewer of them missed a single payment. Auto lending was up, too.
A third consecutive quarter of loan growth prompted some unusually sunny forecasting from an executive better known for predicting rain.
"We have a mild recovery which might actually be strengthening," Dimon said. "It is a kind of a broad-based thing that is taking place. I believe you are seeing real loan growth."
Federal business loan data released on a weekly basis suggests other banks are seeing more demand, too, Dimon said. He will be proved right or wrong this week when other banks report results. Citigroup Inc. and Wells Fargo & Co. are scheduled to report on Tuesday, and Bank of America Corp. is set to do so on Thursday.
Market watchers expect similarly mixed results from Citigroup and Bank of America, given their sizable investment banking, mortgage and credit card operations. JPMorgan Chase's results bode poorly for Goldman Sachs Group Inc. and Morgan Stanley, too. Banks that count on borrowers, not traders, for profits may be in better shape, experts say.
"The traditional, domestic banking business is recovering. Loan quality seems to be improving, consumers seem willing to spend again," says David Dietze, president and chief investment strategist of Point View Wealth Management Inc. in Summit, N.J.
The problem for JPMorgan Chase, he says, is that investors have bought into the company because of the huge numbers its investment bank put up through the downturn. They become extremely disappointed when that profit engine stalls. There is also a solid case to be made that JPMorgan Chase has more in common with Goldman Sachs than it does with Wells Fargo or U.S. Bancorp, two other heavily diversified banks that still mostly stick to traditional banking. JPMorgan Chase has more equity invested in its investment bank than in its retail bank.
Its investment bank was the biggest single earner of the company's seven different reporting segments in 2011, generating about 36% of its nearly $19 billion of profits for the year.
But investment bank profits fell more than 50% from the third quarter and year over year, to $726 million, as global economic uncertainty killed debt and equity trading. The investment bank also recognized a charge of $560 million because tightening credit spreads depressed the value of the company's debt.
A bad quarter on Wall Street means a mixed quarter for JPMorgan Chase, regardless of how it is doing elsewhere, Dietze says.
"Basically, I think there was some sort of hope that they would exceed expectations," he says. "The reality was they didn't."
Nobody consistently makes money in trading, but his company has consistently earned more collecting deposits and lending them out, Dimon said.
"Forget trading. Trading goes up, trading goes down," Dimon said. "There is no part of the investment bank that is naturally stable. Volumes go up and volumes go down. It is not a mystical thing. Volumes will come back. … It won't be because we're geniuses."
He pointedly asked reporters to look closely at what was going on in JPMorgan Chase's 5,500-branch retail bank, particularly in commercial lending and credit cards.
Business loans and deposits rose, as did card sales, automotive loans and merchant bank card transactions.
JPMorgan Chase made $723 billion loans, up 4% from the third quarter and a year earlier. Deposits of $1.3 trillion were 3% higher from the previous quarter and 21% from a year earlier. "The underlying business is looking good — more deposits more loans and all those things," Dimon said.
The company earned $3.8 billion, down 13% from the prior quarter and 23% from a year earlier. Revenue fell 17%, to $22.2 billion.
In mortgages, JPMorgan Chase has continued to originate and sell home loans at a strong pace, despite the toll depressed rates and litigation costs have taken on that business, he said. It set aside another $530 million to deal with mortgage-related lawsuits in the quarter.
"We're getting killed in mortgages if you haven't noticed," Dimon said.
