JPMorgan Chase's fourth-quarter profit fell 76 percent as it wrote down bad loans and set aside more money to cover credit losses at its investment bank.
Without special items like merger gains, the company would have posted a loss, and its shares fell 2.4 percent to $25.28 before the market opened.
Fourth-quarter net profit dropped to $702 million, or 7 cents per share, from $3 billion, or 86 cents per share, a year earlier.
Revenue fell 0.9 percent to $17.2 billion from $17.4 billion.
"Our fourth-quarter financial results were very disappointing," Chief Executive Jamie Dimon said in a statement.
(Dimon appeared on CNBC in early December and discussed his bleak view of the economy. See the interview here).
The results included an increase of $4.1 billion in loan loss reserves before taxes, and pretax writedowns of $2.9 billion for loans funding leveraged buyouts and mortgage-related positions at the investment bank.
The bank also recorded after-tax gains of $1.1 billion from merger-related items and $627 million from ending Chase Paymentech Solutions, a payments and merchant-acquiring joint venture.
Video: Discussing JP Morgan and the rest of the financial sector.
JPMorgan said it ended the year with $136.2 billion in Tier 1 capital, a measure of capital strength based on the riskiness of bank assets.
The fourth quarter was the first to include results from failed thrift Washington Mutual, which JPMorgan acquired in September.
The company said the integration of WaMu was progressing and losses at the thrift had been within expectations.
The acquisition of WaMu, the largest U.S. bank to fail, ratcheted up JPMorgan's exposure to consumer credit.
Dimon had warned investors several times in the fourth quarter about the effects of a deepening recession and rising unemployment on the bank's large consumer business.
On Thursday, Dimon warned again about financial conditions.
"If the economic environment deteriorates further, which is a distinct possibility, it is reasonable to expect additional negative impact on our market-related businesses, continued higher loan losses and increases to our credit reserves," Dimon said.
At Wednesday's close, JPMorgan shares had fallen 17.9 percent so far this year, compared with a 19.2 percent decline in the KBW Bank Index.
- Get Real-Time Quotes for JPMorgan
In 2008, JPMorgan stock slumped 27.8 percent in 2008, compared with the index's 50 percent decline.
Shares in JPMorgan initially rose almost 3 percent in pre-market trade.
- Video: Chris Whalen, Institutional Risk Analytics managing director, discusses the Chase results and what needs to happen in the banking industry: "You can't put Humpty Dumpty together again."
-- Reuters contributed to this report