JPMorgan Profit Misses Estimates

JPMorgan Chase & Co. (JPM), the nation's second biggest financial institution, said Wednesday that its profits were down 11 percent in the fourth quarter on what executives termed "mixed performance" by its seven operating units.

JPMorgan Chase, second only to Citigroup Inc. (C) among U.S. banks, reported net income of $1.67 billion, or 46 cents a share, for the October-December period compared with $1.86 billion, or 89 cents a share, a year earlier. The year-earlier figures do not include JPMorgan's acquisition of Bank One Corp., which was completed last July.

Excluding $650 million in after-tax charges for merger costs and accounting changes, fourth-quarter earnings were $2.3 billion, or 64 cents a share, the bank said. That was below the 68 cents a share expected by analysts surveyed by Thomson First Call.

It was the second consecutive quarter in which JPMorgan Chase's earnings came in below analysts' projections. In the third quarter, earnings were 14 cents a share below analysts' estimates.

Chief Financial Officer Michael J. Cavanagh told reporters that "it's been difficult for analysts and us to connect just on the basis that there's a lot of moving parts with the merger."

JPMorgan Chase's shares fell 24 cents at $38.16 on the New York Stock Exchange (search). Its shares have traded between $34.62 and $43.84 over the past 52 weeks.

William B. Harrison Jr., chairman and chief executive officer, said in a statement accompanying the report that "operating results for the fourth quarter improved from the third quarter, but still reflected mixed performance."

Investment banking earnings were down 18 percent from a year ago, the report said. It said investment banking fees and revenues from fixed-income markets were up but that equity markets revenues were down 24 percent "due to reduced portfolio management trading results." Credit portfolio revenues were also off.

And while profits from retail operations were up, there was a decline in the home finance production and servicing business. The bank took a hit on interest-rate hedges at the same time loan originations were dropping, the earnings report said.

CFO Cavanagh said "we do expect there to be a lower volume of mortgage originations" in coming months "are looking to adjust our strategy accordingly."

Cavanagh also said he expected total merger costs to run between $4 billion and $4.5 billion — slightly above the bank's earlier estimate of about $4 billion.

James Dimon, president and chief operating officer, said in the earnings statement that merger integration "continues to progress well, and we are on track to achieve the $3 billion of estimated annual cost saves."

The company cut 6,000 jobs in 2004 and expects 6,000 more reductions as a result of the merger. It now employs 161,000 workers worldwide.

Dimon told analysts that the cost-cutting moves were positioning the bank for a strong future. JPMorgan Chase, he said, "will be in fabulous position for 2006, 2007 and going on."

Revenues in the quarter were nearly $13 billion, up 60 percent from the $8.1 billion reported a year earlier.

For the year, JPMorgan earned $4.47 billion, or $1.55 a share, on revenue of $43.1 billion. That compared with earnings of $6.72 billion, or $3.24 a share, on revenue of $33.38 billion in 2003.