On the face of it, JPMorgan Chase & Co. reported a mixed quarter, citing several one-time items and a lower tax rate, but executives guided Wall Street to a bottom line that they said provides evidence the New York company is operating at full strength as the Bank One Corp. integration nears completion.
"If you look at this report, what you do see is all of our six businesses have been getting stronger almost every single quarter," James Dimon, the $1.4 trillion-asset company's chief executive and chairman, said during a conference call with investors Wednesday.
Unlike in previous quarters, Mr. Dimon, who took the CEO's role a year ago and the chairman title this year, did not hedge his enthusiasm with a warning that results might not be sustainable. "We feel really good about showing these strengths," he said during the call.
Earnings of $1.09 a share exceeded the average analyst's estimate by 14 cents, in part because of a lower tax rate. Meanwhile, revenue rose in all business lines, though net income was mixed. Retail and commercial banking earnings fell from a year earlier, in part because of rising loan-loss provisions, while the investment banking, credit card, and asset management businesses posted growth.
But Michael J. Cavanagh, JPMorgan Chase's chief financial officer, said during a conference call with the news media: "We had a record quarter" and full year. "We feel we are getting stronger, and better."
Mr. Dimon said, "We're declaring victory in the merger" with Bank One. The deal for the Chicago company closed in July 2004, and though JPMorgan Chase has some minor integration steps to take this year, much of the work has been done. Some major steps were completed last year, when it moved JPMorgan Chase's New York retail branch network to Bank One's operating platform.
This quarter JPMorgan Chase plans to integrate the retail branch network it acquired in an October asset swap in which Bank of New York Co. Inc. acquired its corporate trust business.
Mr. Dimon said Wednesday that his company is at a place where it could digest another large bank deal. "I think the hurdle rate would be kind of high" for an acquisition, "but we're open for business."
JPMorgan Chase's fourth-quarter profits rose 68% from a year earlier and 37% from the third quarter, to $4.5 billion. Revenue increased 14% from a year earlier and 4% from the third quarter, to $16.9 billion. However, overall expenses rose 16% from a year earlier and 1% from the third quarter, to $9.7 billion.
Full-year profits rose 70%, to $14.4 billion, or $3.82 a share, which beat the average analyst estimate by 11 cents.
The overall results were affected by a bundle of nonrecurring times, including a $622 million gain from the Bank of New York transaction and a $133 million charge for moving mortgages from held-to-maturity to the held-for-sale portfolio.
Though the earnings were partly aided by a lower tax rate, Mr. Cavanagh said the tax-related gain was not a one-time occurrence and reflects the company's actual future tax rate.
Some analysts were less enthusiastic about the results.
"Results probably look like much of the industry, with strong capital markets but sluggish traditional banking," Michael L. Mayo of Prudential Equity Group LLC wrote in a research note.
But Jeffery Harte of Sandler O'Neill & Partners LP was more upbeat. "We would characterize today's results as a solid beat," he wrote.
JPMorgan Chase's biggest earnings generators were investment banking and the credit card business.
Investment banking revenue rose 48% from a year earlier and 1% from the third quarter, to $4.7 billion, while income grew 51% from a year earlier and 3% from the third quarter, to $1 billion. Credit card revenue rose 1% from a year earlier and 3% from the third quarter, to $3.6 billion, but net income from the unit soared 138% from a year earlier and grew 1% from the third quarter, to $719 million, because of lower loan loss provisions in the sector thanks for a decline in consumer bankruptcy filings.
Asset management revenue rose 29% from a year earlier and 19% from the third quarter, to $1.9 billion, while net income from the unit rose 19% from a year earlier and 18% from the third quarter, to $407 million.
The shift in the mortgage portfolio caused retail banking earnings to drop 11% from a year earlier and 4% from the third quarter, to $718 million. Without the change, retail banking results showed "modest growth," Mr. Dimon said. Revenue from the business line rose 4% from a year earlier and 5% from the third quarter, to $3.7 billion.
Retail deposits rose 12% from a year earlier and 8% from the third quarter, to $214.1 billion. Excluding the Bank of New York transaction, average deposits grew 7% from a year earlier and 1% from the third quarter. Consumer loans rose 8% from a year earlier and 4% from the third quarter, to $213.5 billion.
In commercial banking, JPMorgan Chase's middle-market business, revenue rose 11% from a year earlier and 9% from the third quarter, to $1 billion - a company record for that business, Mr. Cavanagh said.
Though earnings from the business line fell 8% from a year earlier, they rose 11% from the third quarter, to $256 million. The CFO called the results "excellent."
On average, commercial loans grew 15% from a year earlier and 8% from the third quarter, to $57.7 billion; deposits rose 15% from a year earlier and 8% from the third quarter, to $79.1 billion. Excluding the Bank of New York transaction, loans rose 11% and deposits grew 13% from a year earlier, with the growth stemming fairly evenly from all the company's markets, Mr. Cavanagh said.
Though credit quality improved overall, because of a decline in consumer bankruptcies, there was evidence of deterioration in most portfolios, mostly through rising loan losses. JPMorgan Chase increased its loan-loss provision for its large commercial and industrial portfolio, as well as for middle-market and consumer loans. Only the provision for credit cards fell, as bankruptcies remained at very low levels.
But Mr. Cavanagh said he did not think the deterioration would be disastrous. "Credit conditions have been so good for the past several years that I wouldn't interpret these slight moves towards more normalized levels … is not a concern at all," he said during the news media call.
