A man takes a picture of a Chase sign at the company's Manhattan headquarters. (Spencer Platt/Getty Images )
Reporting from Los Angeles and New York — JPMorgan Chase & Co. kicked off bank earnings season with a 23% decline in profit and sagging revenue that investors saw as an ominous precedent for other big financial companies that report results next week.
An increase in consumer credit card usage and an uptick in business lending couldn't offset weaknesses elsewhere at JPMorgan, Friday's report showed. Investment banking, where revenue fell 30%, was particularly hard hit.
The report landed at a rocky time for markets, with global uncertainties including the European debt crisis restraining major corporate expansions and takeovers. Standard & Poor's downgraded the debt of eight Eurozone countries Friday, stripping France and Austria of their prized AAA ratings.
Closer to home, major players in the mortgage business, like JPMorgan, continue to struggle with mountains of defaulted loans, foreclosed properties and demands that they repurchase flawed mortgages from government-controlled Fannie Mae and Freddie Mac as well as private investors.
Despite recent increases in commercial lending, JPMorgan officials say loan demand from solid businesses is spotty, leaving them with deposits overflowing — and open to accusations that they are too tightfisted after having been bailed out by the government. JPMorgan's deposits rose 21% over the last year to $1.13 trillion.
"Companies are flush with cash and their cash balances are growing," JPMorgan Chief Executive Jamie Dimon said during a call with bank analysts.
JPMorgan, the nation's biggest bank, reported net income of $3.7 billion, or 90 cents a share, for the fourth quarter of 2011, down from $4.8 billion, or $1.12, a year earlier.
The profit was about as expected on Wall Street. But the bank's quarterly revenue fell to $21.5 billion from $26.1 billion a year earlier, coming in well below analysts' consensus forecast of $23 billion.
JPMorgan shares fell 93 cents, or 2.5%, to $35.92.
Since JPMorgan is the largest bank as measured by assets, and regarded as one of the best managed banks, investors reassessed their holdings across the board. Many banks stocks fell 4% in early trading. At the end of the day, Morgan Stanley declined 3.2% to $16.63, Bank of America was down 2.7% at $6.61, Citigroup fell 2.7% to $30.74 and Goldman Sachs slid 2.2% to $98.96.
An exception to the trend was Wells Fargo & Co., which closed the day unchanged at $29.61.
In a reversal of the situation immediately after the financial crisis, investors are betting on stronger showings from banks like Wells Fargo that have focused more on consumers than on trading.
The San Francisco bank, the largest bank as measured by stock market value, has seen its year-over-year earnings rise steadily. Analysts predicted that it would show a quarterly profit of $3.6 billion when it releases its results Tuesday, up from $3.4 billion a year earlier but down from $4 billion in the third quarter.
Bank of America Corp., which is in the middle of a major campaign to scale back risks and raise capital at the behest of regulators, was expected to reverse a loss of $1.2 billion in the fourth quarter of 2010 and report a profit of more than $2 billion Thursday.
Keefe, Bruyette & Woods analysts said JPMorgan's loan loss and mortgage buyback numbers, while still high, had improved enough to be a positive sign for Bank of America. BofA shares have tanked 58% since last year as the Charlotte, N.C., bank has been hammered by tens of billions of dollars in losses from its 2008 acquisition of Calabasas home lender Countrywide Financial Corp.
Analysts have generally been growing more pessimistic about financial firms with big Wall Street trading operations, all of which will report their financial results in the next few weeks. New regulations and global financial turmoil have darkened the prospects for securities firms, making them one of the worst performing sectors on the Standard & Poor's 500 index over the last year.
"We expect this quarter will be characterized more by limited activity and leverage across institutional investors and across corporations given the continued uncertainty in Europe and possible spillover effects in the U.S," analysts at Keefe Bruyette & Woods wrote this week in a note to clients.
Last quarter, Goldman Sachs Group Inc. reported a loss for the first time since the financial crisis. Although Goldman is likely to bounce back to profit when it announces its results Wednesday, it is not expected to show any signs of growth.
Glenn Schorr, a bank analyst at Nomura Securities, said in a report that recent results "have investors wondering if GS has lost its 'mojo.'"