JP Morgan Chase's (JPM) 4Q11 results are in line with Fitch Ratings' expectations. The company reported 4Q11 and full-year earnings of $3.7 billion and $19.0 billion respectively, 4Q11 signaled continued sluggishness, mainly in the investment bank (although other business lines were not immune). While reported results were down on both a quarter-over-quarter (QoQ) and sequential basis, Fitch estimates that JPM had $5.1 billion of pretax profit vs. $4.5 billion in 3Q11. Nonetheless, JPM reported record full year 2011 earnings of $19.0 billion on revenues of $99.8 billion.
The investment bank continues to be a source of volatile earnings. Adjusting for the DVA loss of $570 million in the quarter, net revenues and income would have been $4.9 billion and $1.1 billion respectively and up sequentially from 3Q11 allowing for similar DVA adjustment in 3Q11. Weakness was manifested mainly in equities, although fixed income was down as well highlighting challenges for the business. Nonetheless, JPM continues to retain top spots in league tables highlighting the continued strength of the franchise relative to peers.
The company's Asset Management (AM) and Treasury & Securities Services (TSS) business also experienced marginally weaker results in the quarter reflecting slightly higher expenses in TSS, while AM had modestly lower revenue owing to lower performance fees. TSS, along with IB, also incurred higher credit provisions related to large corporate borrowers, a trend that may be seen at other large banks.
Broadly, in the consumer businesses -- Retail Financial Services (RFS) and Card Services & Auto (CS) -- showed mixed results as RFS had weaker results which were offset by improving performance in CS. The credit card business had improving transaction volume trends in core portfolios and improved loss rates. However, RFS experienced continued weakness in residential mortgage-related businesses, which remain challenged. The company incurred additional provisions of $770 million for purchased impaired loans as well further charges to its mortgage servicing rights.
Corporate/Private Equity swung to a profit of $223 million following the loss incurred in 3Q11 related to the write-down of PE holdings. In addition, JPM added $528 million to its litigation reserve, mainly related to mortgage-related matters.
JPM reported aggregate loan growth of 4% during the quarter, which came mainly from wholesale and commercial lending. This is noteworthy against the weak economic backdrop coupled with the continued run-off of non-core lending portfolios. Moreover, JPM was able to grow deposits at a commensurate rate, with over $1.1 trillion at quarter end.
JPM continues to improve its capital ratios in anticipation of Basel III implementation through its earnings power; its estimated that Basel III Tier 1 Common ratio of 7.9% at quarter end, which should allow the company to maintain its capital flexibility into 2012.
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