JPMorgan reported deep losses on mortgage and credit card loans in the fourth quarter, dashing hopes that consumer credit is on the mend and sending the bank's shares down 2.1 percent.
Quarterly profit soared to $3.3 billion, topping Wall Street expectations, but analysts had been hoping for signs that the bank's credit costs were leveling off or even starting to fall.
In a conference call with investors, Chief Executive Jamie Dimon said, "We don't know when the recovery is." JPMorgan is the first of the major banks to report fourth-quarter numbers, and its results may bode ill for competitors.
Investors were keen to hear JPMorgan's forecast for 2010, and its projections were hardly sunny.
Asked about the outlook for the economy, Dimon said, "There are some good signs out there, but we don't know." The New York-based bank's overall quarterly profit amounted to 74 cents a share, beating analysts' average estimate of 61 cents, according to Thomson Reuters I/B/E/S.
Year-earlier earnings were $702 million, or 6 cents a share. Revenue, excluding assets that have been packaged into bonds and largely sold to investors, totaled $25.2 billion, falling short of analysts' average forecast of $26.8 billion.
JPMorgan shares were down 2.1 percent to $43.75 in morning trading. Shares of other major banks were also lower, weighing on the broader market.
"The logic is, as goes JPMorgan, so goes the rest of the banks," said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati.
The bank's large mortgage and credit card businesses have seen rising credit costs in the last year, offset only by record investment banking revenue.
JPMorgan said it set aside $4.2 billion to cover mortgage losses in the fourth quarter, up $653 million from the same quarter a year earlier.
Loan loss reserves in its commercial banking unit increased to $494 million from $190 million.
Prime mortgage net charge-offs -- loans the bank does not expect to be repaid -- soared to $568 million, or an annualized 3.81 percent of the book, from $195 million, or 1.2 percent, a year earlier.
The bank wrote off loans at a 9.33 percent annualized rate during the quarter, up from 5.56 percent a year earlier but down from 10.3 percent in the 2009 third quarter.
Investment banking generated a fourth-quarter profit of $1.9 billion, compared with a loss of $2.4 billion a year earlier but down 1 percent from the third quarter. Fixed-income trading volume fell from the third quarter.
"JPMorgan is the bellwether, it is the best, most well-capitalized, best-managed bank," said Jamie Cox, managing partner at Harris Financial Group in Colonial Heights, Virginia.
"You would hope they'd be the first bank to be able to begin the process of paring down loan loss reserves." JPMorgan's credit losses could indicate further trouble for Citigroup Inc, which reports quarterly results on Tuesday, and Bank of America Corp, which reports on Wednesday.
Both banks have large consumer exposure. Bank of America shares fell 3 percent to $16.31, while Citi shares fell 1.4 percent to $3.46.