JPMorgan, Wells Fargo profits decline, but beat forecasts

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NEW YORK — JPMorgan Chase & Co., which recently scooped up the toppling investment bank Bear Stearns Cos., said Wednesday that problems with mortgages and other loans cut its own first-quarter profit in half.

The earnings were better than expected, but reinforced the grim outlook for consumer credit that results from Wells Fargo, Washington Mutual and Wachovia have also revealed. Reports from Citigroup and Merrill Lynch later this week are unlikely to brighten the picture.

As the housing market crumbles, people are increasingly unable to pay their mortgages or use their home's value to take out lines of credit. And banks say these trends will only worsen as the months wear on — which means losses expected not just in mortgages, but in all types of lending.

"Everybody knows real estate is bad. The question becomes, do we start to see more deterioration in non-real estate consumer lending and non-real estate commercial lending?" said Jeffrey Harte, bank analyst at Sandler O'Neill & Partners LP. "Credit's the name of the game here — how bad is it, and how much worse will it get?"

JPMorgan said Wednesday it strengthened its reserves for defaulting loans by $2.5 billion, and lost $2.6 billion in value from its portfolio of loans, which include consumer loans as well as loans used to finance leveraged buyouts. The New York-based bank's profit fell 50 percent to $2.37 billion, or 68 cents per share, on $16.9 billion in net revenue.

The results would have been even worse, had it not been for a pretax gain of $1.5 billion when JPMorgan sold its shares in Visa Inc., which went public in March.

But the results were not as bad as many investors had forecast, and JPMorgan shares jumped $2.84, or 6.7 percent, to $44.96.

"JPMorgan's results were relatively good. I say relatively, because they are a bank, and in a climate of credit deterioration, it negatively affects every bank," Harte said.

Wells Fargo & Co. also pleased investors with stronger-than-anticipated earnings. The nation's fifth-largest bank's shares climbed $1.20, or 4.3 percent, to $29.01 after saying its first-quarter profit fell a comparatively mild 11 percent to $2 billion due to $1.5 billion in loan write-offs and a $500 million provision for future loan losses.

But executives from both JPMorgan and Wells Fargo indicated that they face a rough road ahead.

JPMorgan's CEO Jamie Dimon said in a statement that if the economy to stays weak and the credit markets remain under stress, as the bank expects, those factors "are likely to continue to negatively impact our firm's credit losses, overall business volumes and earnings — possibly through the remainder of the year or longer."

And according to Wells Fargo Chief Executive John Stumpf, "We may not have seen the last of the challenges for this cycle."

Both Dimon and Stumpf indicated, though, that they consider themselves the strong players in a field of weaker ones.

"We're very excited about our opportunities to continue to gain market share prudently ... at a time when many of our competitors are struggling," Stumpf said. And when an analyst asked on JPMorgan's conference call whether the bank's retail business has the ability to pounce on an acquisition opportunity, Dimon and CFO Mike Cavanagh answered in unison: "Yep."

With charge-off rates climbing for home equity loans, auto loans, credit cards, subprime mortgages and even mortgages that are not subprime, investors are curious how the weaker players during the credit crisis — namely Citigroup Inc. and Washington Mutual Inc. — will fare.

WaMu reported a $1.1 billion loss for the first quarter on Tuesday. Punk, Ziegel & Co. analyst Richard Bove predicts that the company will not post a significant profit until 2010.

On Friday, Citigroup is expected to report a loss for the first quarter and more than $10 billion in write-downs, after suffering its biggest loss ever in the fourth quarter of last year. Merrill Lynch — not a commercial lender, but an investment bank that made poor bets on mortgage-backed securities — is also forecast to post its second-straight quarterly loss on Thursday. Merrill's write-down will reportedly be between $6 billion and $8 billion.

Even Wachovia Corp., considered a fairly conservative lender during the housing boom, reported a $393 million first-quarter loss on Monday, which led it to sell stock in itself to outside investors and slash its dividend.

Banks' credit losses do not only mean fewer loans for consumers and lower dividends for shareholders — they also mean job cuts. Citigroup and Merrill are both expected to eliminate more jobs to reduce costs.

Dimon said during the conference call that it was not yet clear how many jobs will be lost as Bear Stearns gets absorbed into JPMorgan. "There are going to be headcount reductions at both," Dimon said. But, he added, "we're going to do everything we can" to find jobs for those dislocated by the deal, and said JPMorgan has frozen hiring in New York City so that laid-off JPMorgan and Bear Stearns employees can get first consideration for job openings.

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AP Business Writer Michael Liedtke in San Francisco contributed to this report.

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On the Net:

http://www.jpmorganchase.com

https://www.wellsfargo.com/

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