JPMorgan Chase (NYSE: JPM) posted earnings of $3 Billion in net income with a generation of $0.86 EPS vs $0.92 estimates. Revenues were $18.275 Billion on a consolidated basis, while First Call had just over $17 Billion projected, although that it might not be comparable because of writedowns and charge-offs.  It had $1.3 Billion in writedowns to CDO’s and subprime net of hedges and added $2.3 Billion in credit reserves that are now $10 Billion.  It also maintained what it says is a strong 8.4% Tier 1 capital ratio.

Areas of strength came from investment banking, asset management, treasury & securities services, and commercial banking.  As you will see below Jamie Dimon is staying strong but also keeping the door open to a weak economy acting as a potential further drag to the company.  If this surprises analysts, then we really do not know what to say nor do we know what to call them (but it won’t be good).

THE STRONG JAMIE DIMON:

• Jamie Dimon, Chairman and Chief Executive Officer, said, “I am pleased with our company’s record results for the year, despite our mixed performance in the fourth quarter. Our lower quarterly results were affected by the Investment Bank’s markdowns in subprime-related positions and weaker trading. In addition, our consumer home equity and subprime loan portfolios performed worse than we expected….. The diversified nature of our company helped offset areas of weakness.

THE CAUTIOUS JAMIE DIMON:

• Looking ahead to 2008, Dimon commented, “We remain extremely cautious as we enter 2008. If the economy weakens substantially from here – for which, as a company, we need to be prepared – it will negatively affect business volumes and drive credit costs higher. However, we feel well-positioned given the investments and actions we have taken over the past few years to improve our businesses’ operating margins, create a stronger systems infrastructure and build a fortress balance sheet. Regardless of the economic environment, with this solid foundation in place, we can continue to serve our clients well and build the business for the future.”

JPMorgan Chase is one of the Dogs of the Dow we noted could be one of the component winners once this malaise stabilizes and the winners stand out from the losers. Its shares were crushed yesterday after a downgrade and after Citi stunk up Wall Street.  It closed at $39.17 yesterday.  This morning is still too difficult to see where the pre-market trading will go because shares initially indicated lower on the "cautious comments" but are now indicated a few pennies higher.

Consider this one a work in progress until you get to hear Dimon’s comments and demeanor in the conference call.

Jon C. Ogg
January 16, 2008

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