JPMorgan Chase kicked off the earnings season on Friday with news that it turned a strong $17.4 billion profit in 2010, up 48 percent from $11.7 billion the year before, as the consumer lending environment improved and commercial banking notched record results.þþThe rosy report could pave the way for JPMorgan to increase its dividend by as much as a dollar. Wall Street has been anxiously awaiting JPMorgan’s earnings, hoping it will signal that 2011 will be the year plump shareholder payouts return. þþ“We do think dividend increases are in the cards for some,” said Jason Goldberg, a senior analyst at Barclays Capital. “JPMorgan will be in that grouping.”þþThe bank earned $4.8 billion in the final three months of 2010, or $1.12 a share, which significantly beat expectations. Analysts’ estimates put JPMorgan’s earnings at 99 cents a share for the fourth quarter. The bank generated revenue of $26.7 billion for quarter.þþThese figures far exceed JPMorgan’s fourth quarter numbers in 2009, when it earned $3.3 billion, or 74 cents a share, on revenue of $25.2 billion.þþThe bank recorded annual profit of $3.96 a share, up from $2.26 a share in 2009. But even amid strong profit at the bank, revenue for the year dipped to $104.8 billion, from $108.6 billion in the 2009.þþThe bank’s strong profit, in part, reflect the better consumer lending environment. Retail financial services, which includes everything from mortgages to credit cards to checking accounts, reported income of $708 million, compared with a loss of $399 the prior year.þþThe bank, this quarter, put aside $2.5 billion to cover credit losses — $1.8 billion less than it allocated in the same period in 2009. Much of that drop is owed to an improving credit card division, the bank said.þþIn mortgage banking quarterly profit rose 117 percent to $577 million. Originations rose 46 percent from the prior year. Even though charge-offs and delinquencies dropped, the company said credits costs remained a “significant drag” on returns. þþThe bank also faces litigation stemming from its mortgage business. JPMorgan is among several banks facing state investigations and private lawsuits over questionable foreclosure procedures. Homeowners and state regulators have claimed that banks foreclosed on homes without proving they owned the mortgages. Some banks are accused of using fabricated documentation in foreclosure proceedings. þþSome are demanding that big banks, JPMorgan included, buy back troubled loans sold at the height of the mortgage bubble. In JPMorgan’s third quarter earnings report, the bank said it set aside $1 billion to deal with repurchase claims by Fannie Mae and Freddie Mac. The bank reported on Friday that it put aside another $1.5 billion in the fourth quarter to pay for litigation related to repurchases.þþMr. Dimon, in a conference call on Friday, said he does not expect repurchase claims for private-label mortgages, which could take years to resolve, to be a material concern. þþQuarterly profit in retail banking fell modestly by 7 percent to $954 million, as deposit-related fees dropped. The credit picture, however, did improve. In the fourth quarter, the provisions for losses were $73 million, down $175 million from the prior year. Charge-offs in the group were $173 million, versus $248 million the previous year. þþCommercial banking reported a record profit of $530 million, up $306 million from the prior year. The banner quarter reflect improving credit conditions. Provision for losses was $152 million, compared with $494 million in the prior year. Net charge-offs dropped roughly 40 percent to $286 million, with the bulk of those related to commercial real estate.þþMeanwhile, fourth-quarter profit in the investment banking division was down 21 percent from the same period 2009, as equity underwriting and advisory fees dipped.þþThe bank has come a long way since the depths of the financial crisis, when it earned $0.06 a share in the fourth quarter of 2008. þþ“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 JPMorgan’s chief executive, Jamie Dimon.þþMr. Dimon was foreshadowing on an impressive report when he took to the airwaves on Tuesday to boast his upcoming plan to pay an annual dividend of 75 cents to a dollar. That would be a significant jump for JPMorgan, which currently pays an annual dividend of 20 cents.þþWhen the financial crisis struck, JPMorgan, Wells Fargo and other industry stalwarts slashed their payouts to investors, aiming to shore up their cushions of capital. þþNow, after two years of holding dividends low and steady, banks are eager to satisfy investors, who historically flocked to bank stocks in hopes of a reliable payout. þþMost of the banks would love to increase their dividends, said Christopher Kotowski, a banking analyst at Oppenheimer. “And for most of them, there’s no reason why you wouldn’t, other than the political sensitivity,” he said. þþMr. Dimon, in the earnings report, reiterated the bank’s financial standing and hinted the firm could soon return more money to shareholders.þþ“We continued to strengthen our fortress balance sheet,” he said. “We are confident that we have the earnings power to generate substantial capital, well beyond what we will need to prudently grow our business.”þþOf course, JPMorgan and its competitors must first receive the blessing of the Federal Reserve, which is embarking on a second round of so-called bank stress tests. The Fed, which is focusing on whether banks have sufficient capital, is expected to complete its check-up in March. þþJPMorgan could raise its dividend as soon as April. þþJPMorgan’s report is the beginning of a crucial earning season. Citigroup will report its earnings on Tuesday. Bank of America, Goldman Sachs, Morgan Stanley and Wells Fargo will follow later in the week.þþGood news for the banks could translate into higher hopes for the broader economy. þþ“It’s not like issues from the financial crisis are going away, but we think we’ll see positive overtones as to how the economic recover is taking hold,” said Moshe Orenbuch, an analyst at Credit Suisse. þ
Source: NY Times
