JPMorgan Chase posts surprise profit

Analysts expected the bank to break even. But earnings fell sharply from a year ago, while CEO Jamie Dimon warns of "very difficult business climate."

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By David Ellis, CNNMoney.com staff writer

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JPMorgan Chase Chairman and CEO Jamie Dimon called the bank's 76% plunge in profits "very disappointing."
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NEW YORK (CNNMoney.com) -- JPMorgan Chase reported a surprise quarterly profit Thursday, even as the company suffered a hit in its investment banking business and was forced to set aside a chunk of cash for looming loan losses.

The New York City-based bank said net income fell 76% to $702 million, or 7 cents a share during the fourth quarter, from $2.97 billion, or 86 cents a share, during the same period a year ago.

The results beat expectations, however, as analysts were forecasting that the company would break even for the quarter, according to Thomson Reuters.

Helping boost the results was a one-time gain of $1.3 billion, related to its purchase of the failed savings and loan Washington Mutual last year. Excluding this, JPMorgan Chase said it would have reported a loss of 28 cents per share during the quarter.

Revenue fell 1% to $17.2 billion, missing analysts' expectations of $18.8 billion.

Investors appeared to be encouraged by the news. JPMorgan Chase (JPM, Fortune 500) shares were up slightly in late morning trading, despite the fact that many of its peers were suffering steep losses due to broader fears about the banking sector.

Weak economy could pose challenges for banks

Nonetheless, JPMorgan Chase chief executive officer Jamie Dimon, who had warned about the company's lackluster performance weeks in advance, called the results "very disappointing."

Dimon faulted, among other things, the company's investment banking business, which was hit hard by a series of writedowns on its leveraged loan portfolio and mortgage-related investments. That division, which has gained market share against rivals in recent months, suffered a net loss of $2.4 billion during the quarter.

The company also moved to insulate itself against future loan losses in both its credit card and mortgage-related businesses, adding $4.1 billion to its reserves during the quarter.

"That reinforces the perception that they have an extremely strong balance sheet overall," said Richard Staite, a London-based banking analyst with Atlantic Equities who tracks the company.

Dimon made a point Thursday to stress that the company was continuing to make new loans, issue new credit cards and maintain existing lines of credit, even as the company tightens underwriting standards and the appetite for credit remains depressed.

Big banks, including JPMorgan Chase, have faced plenty of scrutiny in recent months about what they are doing with government funds as part of the Troubled Asset Relief Program, or TARP. The Treasury Department injected $25 billion into JPMorgan Chase in October.

Critics maintain that banks should be using the money they get from the government to lend to consumers and businesses, not make acquisitions or fix holes in their balance sheets.

"We are trying to follow the intent and spirit of TARP," Dimon told investors during a conference call Thursday.

Dimon: Dividend is safe

Dimon also sought to reassure investors by indicating that he felt confident about the health of the bank's balance sheet, adding that the bank would not need to cut its dividend, as many other banks have done.

But those remarks were tempered by his outlook for 2009.

Dimon said it remained possible that the economic environment could deteriorate further, with the national unemployment rate possibly as high as 8% in 2009. It was 7.2% in December.

"It's fair to say this is the minimum you are going to see," he said. "That is just an opinion."

JPMorgan Chase is the first among the nation's biggest banks to report fourth-quarter numbers.

Citigroup (C, Fortune 500) is widely expected to report a sizable loss when it releases its results on Friday. There are reports that Citi will also unveil a major restructuring plan Friday.

Bank of America (BAC, Fortune 500) is expected to post a profit when it delivers its results next week, but there are growing concerns about how BofA will deal with losses at its recently acquired Merrill Lynch unit.

According to a Wall Street Journal report, the government is said to be working in finalizing a deal to give the bank more financial assistance to help it digest the Merrill deal. To top of page

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