JPMorgan Chase said on Wednesday quarterly profit fell a worse-than-expected 24 percent as the No. 3 U.S. bank lost $1.3 billion on risky mortgages and set aside more money for rising losses on home-equity loans.
The bank quadrupled to $1.1 billion the provision it needs to cover continued problems on home equity and subprime mortgage loans. It also said credit card spending slowed in December, a sign the U.S. economy could suffer as cash-strapped consumers face rising food and heating costs while the value of their homes slide.
"We remain extremely cautious as we enter 2008," JPMorgan Chief Executive Jamie Dimon said in a statement. He said a worsening U.S. economy would boost consumer credit losses beyond current levels.
The company's stock was up 48 cents at $39.65 before regular trading began. While the bank's profits were down, JPMorgan is doing much better than some rivals such as Citigroup Inc which posted huge losses in the fourth quarter.
JPMorgan reported fourth-quarter income from continuing operations of $2.97 billion, or 86 cents a share, down from $3.91 billion, or $1.09 a share, in the year-earlier quarter.
Analysts, on average, had looked for JPMorgan to earn 91 cents a share, according to Reuters Estimates.
Total net revenue rose 7 percent to $17.4 billion.
Credit Suisse analyst Susan Roth Katzke said JPMorgan experienced a broad-based deterioration in credit quality.
"Despite all of this, revenue growth was better than expected" in several divisions, including commercial banking and asset management, she said.
"Credit is the concern that drives our estimate cut this morning," she said. Credit Suisse now expects the bank to earn $4.20 a share this year, down from its previous estimate of $4.45 a share.
Profit at JPMorgan's investment banking operations dwindled to $124 million from $1 billion in the year-ago period. The bank reduced the value of subprime positions by $1.3 billion while debt underwriting fees declined 39 percent because of less activity on bonds and loan syndications.
In the retail segment, the provision for credit losses was $1.1 billion, up from $262 million in the prior year. Losses on home-equity loans continued to hurt performance amid slumping U.S. housing prices. Net charge-offs on home equity loans were $248 million, compared to $51 million in the year-ago period.
Net income at the bank's credit card services fell 15 percent to $609 million on a higher loss rate.
Bright spots for the bank were treasury services and asset management. The segments saw profit rise 65 percent and 29 percent, respectively.