J.P. Morgan Sets Tone For Profit Taking In Banks (JPM, BAC, C, WFC)

J.P. Morgan Chase & Co. (NYSE: JPM) is a bit of a disappointment on the surface as revenues came in under plan.  Jamie Dimon and friends reported earnings of $3.7 billion, or $0.90 EPS, on flat sales of $22.3 billion.  Thomson Reuters had estimates of $0.91 EPS on $23.05 billion in sales as of Thursday. Investors will want to also pay close attention to shares of Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C), and Wells Fargo & Co. (NYSE: WFC) on this news.

The company’s quarter did include some items such as a $567 million ($0.09) pretax loss from debit valuation adjustments in the investment bank; another $528 million ($0.08) expense for additional litigation reserves mostly in mortgages.  It also included a $730 million pretax ($0.11) benefit by lowering loss reserves tied to credit card operations. Net charge-offs were $2.9 billion in the fourth quarter, down 43% compared with the prior year, and nonperforming assets declined by 33%. 

More importantly, the Basel I Tier 1 Common was listed as $123 billion, or 10.0%, and it projects Basel III Tier 1 Common of 7.9%.  The credit reserves were $28.3 billion, with loan loss coverage ratio at 3.35% of total loans.  JPMorgan’s total deposits were up 21% from a year earlier at $1.1 trillion.

Investors have put most major banks under book value.  It ended the fourth quarter of 2011 with a book value of $46.59, up from the $45.93 book value one quarter earlier and up even more from the book value of $43.04 at the end of 2010. 

Currently the focus is on revenues being light, but we would caution that the banks have risen drastically.  J.P. Morgan stock was up 11.6% before earnings so far in 2011 if you adjust for the dividend payment.  Shares are indicated down 2.6% at $36.00 after closing at $26.85 on Thursday.

Bank of America Corp. (NYSE: BAC) had been up 22% just since December 30 and shares are indicated down 2.5% this morning.

Citigroup Inc. (NYSE: C) had been up 20.1% since December 30 and shares are indicated down 1.7%.

Wells Fargo & Co. (NYSE: WFC) had been up about 7.5% since December 30 and shares are not yet trading.

JON C. OGG