Loss may loom for JPMorgan Chase

Despite managing to stay ahead of its peers over the past year, some analysts think the bank slipped into the red during the fourth quarter.

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By David Ellis, CNNMoney.com staff writer

The latest projections for JPMorgan Chase suggest that the banking giant will break even for the quarter.

NEW YORK (CNNMoney.com) -- JPMorgan Chase has so far avoided quarterly losses throughout the credit crisis. Those days may be over.

Earlier this week, the banking giant bumped up the release of its fourth-quarter results to this Thursday - a move viewed by some to get a negative quarterly report out of the way. The bank was originally scheduled to report results on Jan. 21.

Analysts have steadily lowered their expectations for JPMorgan Chase's results in recent weeks after chief executive officer Jamie Dimon suggested in mid-December that his company's quarterly performance would be dismal.

As of Wednesday afternoon, expectations were for the New York City-based bank to break even for the fourth quarter. But earlier Wednesday, the consensus estimate was for a loss of a penny per share. Forecasts range from a profit of 16 cents a share to a loss of 20 cents.

"It is all going to be bad," said Matt McCormick, analyst at Bahl & Gaynor Investment Counsel. "The fourth quarter was bad for all these guys."

But this wouldn't be the first time that analysts have feared the worst about JPMorgan Chase (JPM, Fortune 500) numbers, only to be proved wrong.

The New York City-based bank was widely expected to report a third-quarter loss in October, as a result of its purchase of the failed savings and loan giant Washington Mutual.

The company still managed to stay in the black, reporting net income of $527 million, or 11 cents a share.

But it's getting tougher to imagine how JPMorgan Chase can avoid a loss this time around.

Capital markets activity, which encompasses everything from underwriting to mergers and acquisitions, has been downright lousy in recent months. That is certain to take a bite out of the bottom line of JPMorgan's investment banking business, even though the unit has gained market share in recent months.

There is also the risk that the company will once again have to take additional writedowns on a variety of assets, including mortgage-related securities and its leveraged loan portfolio.

But some analysts argue that the biggest source of pain for the bank will be its loan loss provisioning.

With the economy continuing to deteriorate and unemployment expected to be on the rise throughout 2009, some analysts believe JPMorgan Chase and other large banks will have to aggressively set aside cash this quarter to cover future loan losses.

"There is a risk that they will have to take lot of provisions for further losses," said Henk Van Tulden, an analyst who tracks JPMorgan Chase for the Netherlands-based firm Financiele Diensten Amsterdam.

JPMorgan Chase may still be able to fare better than peers such as struggling Citigroup (C, Fortune 500), however.

The company's purchase of WaMu and its last-minute rescue of Bear Stearns last March may actually help boost profits. Some analysts anticipate the two deals could add several cents per share to the bank's earnings this quarter.

At the same time, the firm could report another surge in deposits. Big banks like JPMorgan Chase and Wells Fargo (WFC, Fortune 500) both said they attracted more deposits in the third quarter as consumers looked to put their savings with institutions that were perceived to be safe.

It is also likely that Dimon will remind investors that the bank remains flush with capital.

"They are going to look for small victories," McCormick said.

But with a rough year behind it and concerns growing that 2009 will not look much better for banks and the overall economy, don't expect Dimon to offer any sort of outlook that is much better than the well-worn line of "cautiously optimistic." To top of page

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