|JP Morgan Chase's New York Branch|
By David Henry
Fri Jan 13, 2012 9:35am EST
(Reuters) - JPMorgan Chase & Co's fourth-quarter profit fell 23 percent, in line with Wall Street expectations, as the European debt crisis depressed trading and corporate deal-making, dragging down shares of the major U.S. banks.
But Chief Executive Jamie Dimon said the largest U.S. bank by assets was seeing signs of improvement in U.S. loan demand and credit quality as the economy recovers.
"I believe you are seeing real loan growth," Dimon said in a conference call with reporters.
JPMorgan is the first major U.S. bank to announce results for the fourth quarter. Its figures show Wall Street firms such as Goldman Sachs Group Inc and Morgan Stanley are in for a tough quarter as investment banking suffers.
Others such as Bank of America Corp and Citigroup Inc, which also report results in the coming days, could benefit from the stronger business loan demand that JPMorgan experienced but could also face problems in investment banking and housing loans.
JPMorgan's results "show that there are major headwinds against the banking industry and it requires a strong management team to battle the headwinds," said Rick Meckler, president of investment firm Libertyview Capital Management in New York.
"The bigger negatives tend to be the housing and mortgage situation and investors questioning, 'Have we really hit bottom in this sector or is this just a black hole?'"
JPMorgan shares fell 2.9 percent in premarket trading. Goldman Sachs was down 2.2 percent, Morgan Stanley was down 1.8 percent, and Bank of America was down 2 percent.
Dimon expressed renewed concern about the European debt crisis, saying he was "very, very cautious."
"I would put myself in the 'increasing worried' category," he said.
JPMorgan said fourth-quarter net income was $3.72 billion, or 90 cents a share, down from $4.83 billion, or $1.12 a share, a year earlier.
Wall Street analysts, on average, had expected 90 cents a share, according to surveys by Thomson Reuters I/B/E/S.
Revenue declined 17 percent to $22.2 billion on an adjusted basis. Investment banking revenue fell 30 percent to $4.36 billion, hurt by a 39 percent drop in underwriting and advisory fees, a 13 percent decline in fixed income, and a 31 percent fall in equity markets.
The results were complicated by an accounting adjustment that reduced earnings by 9 cents per share to reflect a change in the market value of JPMorgan debt during the quarter. In the third quarter, the accounting adjustment added 29 cents per share to profits.
The bank also booked additional expenses for litigation, primarily for mortgage matters, totaling 8 cents a share. It said reducing its loan loss reserves added 11 cents per share to the earnings.
"The earnings show how well JPMorgan can be managed in one of the roughest times," said money manager Michael Holland, founder of Holland & Co. "They were able to pull off a meet-or-beat quarter."
"We all knew the fourth quarter would be difficult," said Gary Townsend of Hill-Townsend Capital. "But the overall economic outlook has been improving from an economic standpoint starting in December."
The bank's return on equity, a key measure of shareholder profits, fell to 8 percent from 11 percent a year earlier and 9 percent in the 2011 third quarter.
The company's quarter-end share count declined 4 percent from a year earlier as it bought back stock.
(Additional reporting by Jed Horowitz in New York, Rick Rothacker in Charlotte, North Carolina, and Ben Berkowitz in Boston; editing by John Wallace)