James Dimon, the chairman and chief executive of JPMorgan Chase & Co., took full advantage of his fourth-quarter earnings call Thursday to make the case his company has not simply stashed away the $25 billion it received under the Treasury Department's Troubled Asset Relief Program.
That money, he said, helped finance the $150 billion of credit JPMorgan Chase extended in the fourth quarter. During a call with analysts, Mr. Dimon also highlighted loan commitments, including $50 billion of interbank lending, the purchase of a $1.4 billion Illinois municipal bond issue others would not touch, and a $10 billion increase in commercial lending, along with two syndicated finance deals in the food and beverage industry.
"We are trying to follow the spirit and the intent of the Tarp," Mr. Dimon said.
Together, he said, the loans demonstrate improvements in the battered credit markets.
"I think if you look at the markets, you have seen a clear thawing in Libor markets … and interbank lending. You see a very clear investment-grade market. There are several high yield markets clearing," Mr. Dimon said.
"For the most part, there are a lot of things" the Federal Reserve Board "has touched and gotten its hands around," he said.
In a conference call with reporters later, Mr. Dimon said JPMorgan Chase is "seeing spreads come in even on mortgages."
His words seemed to resonate with analysts Thursday.
Betsy Graseck, a Morgan Stanley analyst, said people are itching to know how Tarp funds are being deployed.
"I was pleased to see it," she said. "You should get credit for lending."
Chermaine Lee, an analyst with Marsh & McLennan Cos.' Celent, said she saw the loan disclosure as "a smart move to provide the perspective." She added, "They are being relatively responsible and constructive by trying to be more transparent."
Still, Mr. Dimon said some areas have yet to thaw. He cited credit card securitizations and student loans as examples.
And despite extending credit, JPMorgan Chase's overall loan book shrank 2.3% from a quarter earlier, to $744.9 billion. During the call with reporters, Mr. Dimon said the decline was driven by curtailing originations in its home equity book, and by allowing some of the loans to run off the balance sheet.
Credit card spending declined 8%. Nonperforming assets fell 20.1% from the third quarter but more than tripled from a year earlier, to $12.7 billion.
Comparisons with the results from a year earlier were skewed by the government-assisted purchases of Bear Stearns Cos. and Washington Mutual Inc.'s banking operation.
Mr. Dimon said Bear Stearns cost his company "several billions" of dollars in the fourth quarter. JPMorgan Chase's investment bank took a drubbing, losing $2.36 billion in the quarter after taking $2.9 billion of writedowns on leveraged loans and mortgage-related exposures. The unit also recorded $721 million of losses from tightening credit spreads on certain structured liabilities. "This is a tough business and we don't assume that it'll be easy" for the investment bank in the future, he said.
Still, JPMorgan Chase continued to buy mortgage assets, collateralized loan obligations, and credit-related products in the quarter. "We are getting enormous spreads that are very safe and sound," Mr. Dimon said.
He drew the line on leveraged lending. "We're not adding to that portfolio, because we've already got plenty," he said.
Credit costs continued to mount, with the loan-loss provision rising 28.2% from the third quarter and 170% from a year earlier, to $8.54 billion. About 87% of the provision was consumer-related in areas such as mortgages, home equity, and credit cards.
JPMorgan Chase narrowed its forecast for losses on Wamu's loan book over the life of the loans to a range of $32 billion to $36 billion, compared with a range of $30.7 billion to $36.7 billion outlined Sept. 29 when the Wamu deal was announced.
JPMorgan Chase also said Thursday that loan marks taken when it closed the deal cover roughly $32.5 billion of losses from impaired loans.
During the call with reporters, Mr. Dimon said Wamu's assets "are performing very much as expected, though it is very early."
JPMorgan Chase remained profitable during the quarter, predominantly because of a number of special items, including a $1.3 billion gain from updated accounting for the Wamu purchase, $853 million of hedging gains on mortgage servicing rights, and a $627 million gain from dissolving a joint venture. (JPMorgan Chase said the fair value of nonfinancial assets acquired from Wamu topped the deal price. The company would not comment further.)
Earnings rose 33.2% from the third quarter but fell 76.6% from a year earlier, to $702 million. Though JPMorgan Chase cited a gain of 7 cents a share, many analysts said that excluding one-time gains, it lost 25 cents or more.
Ms. Graseck characterized the fourth-quarter results as "a high-quality miss, because the vast majority of it was tied to the reserve build." She said the Wamu accounting gain reflected fresh accounting that turned up lower costs and liabilities than the company had originally seen.
However, Mr. Dimon said he expects headwinds to intensify and quarterly losses in home equity to top $1 billion this year, compared with $770 million in the fourth quarter. The same trends are expected for subprime and prime mortgages, he said. Losses will eventually rise in the commercial book, where the fourth-quarter net chargeoff ratio was a "surprisingly" low 0.4%.
Mr. Dimon defended his company's dividend. "We never raised ours to a very high level, and we have an awful lot of earnings power to cover that dividend, even if there's a temporary shortfall in earnings," he said. "Obviously, it's up to the board and up to how bad you think the environment might get eventually. But we don't think we're going to have a problem paying our dividend."