With J.P Morgan Chase (NYSE:JPM) considered among the top-run banks in the country, and having survived the economic and banking crisis better than most in the industry, the disappointing fourth-quarter results underscores the reality that we’re far from being in an economic recovery, and 2010 will be far less profitable than some have predicted.
There were several factors that communicated J.P. Morgan isn’t at all certain about 2010 concerning its performance, and the street caught this fairly easily, punishing other companies in the financial and banking sector as well.
Some of the major reasons results were disappointing didn’t include earnings, as they performed strongly there, but the one-off reasons in many cases for those earnings, as well as the other numbers and decisions by the company, show the quarter was an earnings anomaly, and the company has little confidence they can carry that performance forward.
The second reason for negative response was the continuing focus on adding to their credit reserves, which speaks to the ongoing recession and poor jobs numbers, which continue to be the reality, in spite of most media outlets repeating the recession is over mantra. Leaders at J. P. Morgan know better, and added an additional $1.9 billion to reserves set aside for losses in relationship to consumer loans. That brings the credit reserves to the company to $32.5 billion.
The continuing weak job market demanded those actions, which simply reminded people the recession continues.
Finally, the fact that the company didn’t increase its dividend spoke volumes about how it views 2010, and that is they don’t have confidence and any type of certainty that things will continue to get better, which they would have to have a clear view of if they were to increase the dividend. The fact that they didn’t disappointed people, but then again, with expectations based upon the mainstream media simply repeating and reporting what they hope for rather than what is real, it’s understandable why expectations were skewed.
Chief Executive Officer Jamie Dimon’s statement pretty much sums it all up: “While we are seeing some stability in delinquencies, consumer-credit costs remain high, and weak employment and home prices persist. Accordingly, we remain cautious.”
This doesn’t even take into account the commercial loan defaults set to explod in 2010 as well. It’s going to be a tough year in my estimation, and even this strong earnings results and the underwhelming response to them show we are far from turning the corner, and so is the banking industry as a whole.
