JPMorgan Chase (NYSE:JPM) recently reported fourth-quarter and full-year results that indicated 2009 marked a stunning and rapid reversal from the height of the credit crisis. A further investigation of the results demonstrate that there is still work to do in terms of returning fully to form in its traditional banking operations, but the share price multiple off normalized earnings is compelling.

IN PICTURES: 6 Major Credit Card Mistakes

Fourth-Quarter Highlights
Reported net revenue grew 34% to $23.2 billion. Subtracting out $12 billion of non interest expenses led to a pre-provision profit of $11.2 billion, which JPMorgan believes is a good indication of its potential, once provisions for credit losses amounting to $7.3 billion are factored in, resulting in $3.3 billion in net income or 74 cents per diluted share.

Results at the investment banking operations were strongest, reporting net revenue of $4.9 billion and $1.9 billion in net income on a 38% increase in investment banking fees and 66% jump in equity underwriting fees. Provisions for credit losses also fell sharply, and return on equity was 23% as the unit rivals competition from large investment banks, including Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) with top rankings in a number of debt and equity underwriting categories.

Retail financial services and card services continued to reel from hefty credit loss provisions, even as net interest margins grew and benefited from a steep yield curve, and ability to profit from them spread between short- and longer-term interest rates. The managed charge-off rate jumped to 9.33%, but fell sequentially from 10.30% last quarter, indicating that consumers with credit card balances are struggling less as the economy improves.

The remaining businesses, including commercial banking, treasury & securities services, and corporate/private equity, posted a mixed bag of results on further credit loss provisions, losses in the bank's own private equity, gain in the investment portfolio and less of a need for treasury management services now that the credit crisis has subsided. Asset management revenue and profits did see a boost from a higher stock market and addition of businesses from Bear Stearns.

Full-Year Results
The company reported extreme growth in net revenue of 49% for the full year and on a per-quarter basis of 34%, compared to last year, as the addition and integration of Bear Stearns and Washington Mutual boosted the top line. Strong investment banking profits and gains in its own investment portfolio boosted the bottom line as full-year net income came in at $11.7 billion, or $2.26 per diluted share.

The Bottom Line
JPMorgan's fourth-quarter earnings handily beat analyst earnings projections, but the shares traded down on concerns over the outlook for the core consumer and traditional banking operations that also continue to haunt money center rivals Bank of America (NYSE:BAC) and CitiGroup (NYSE:C). Indeed, the investment banking an investment portfolio gains are the two most volatile units, and can't be counted on for consistent profits going forward. (For a brief history on J.P Morgan, read The Kingpin Of Wall Street: J.P. Morgan.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Trading Strategies

    How To Buy Penny Stocks (While Avoiding Scammers)

    Penny stocks are risky business. If want to trade in them, here's how to preserve your trading capital and even score the occasional winner.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Chart Advisor

    Stocks to Short...When the Dust Settles

    Four short trades to consider, but not quite yet. Let the dust settle and wait for a pullback to resistance for a higher probability trade.
  10. Technical Indicators

    Using Moving Averages To Trade The Volatility Index (VIX)

    VIX moving averages smooth out the natural choppiness of the indicator, letting traders and market timers access reliable sentiment and volatility data.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  3. Indicator

    Indicators are statistics used to measure current conditions ...
  4. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  5. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  6. Sucker Yield

    When an investor has essentially risked all of his capital for ...
RELATED FAQS
  1. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!