Even banks whose profits are holding up amid the sub-prime crisis are sounding gloomy about business conditions this year. That doesn't bode well for hiring or compensation.
"We remain extremely cautious as we enter 2008," said JPMorgan Chase Chief Executive Jamie Dimon in a statement accompanying the bank's fourth-quarter earnings release Wednesday. "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."
The word, "earnings," is appropriate in this case. Despite sub-prime write-downs and increased credit losses JPMorgan reported a bottom-line profit - in marked contrast to the massive quarterly loss reported by Citigroup a day earlier. JPMorgan's net income came in at $2.97 billion, or 86 cents per share, down from $4.53 billion, or $1.31 per share, for the fourth quarter of 2006. Revenue rose 7 percent to $17.38 billion. The results included a $1.3 billion write-down of sub-prime mortgage positions, and a $2.54 billion provision for credit losses. Investment bank profit fell 88 percent to $124 million after the write-down.
On the plus side, asset management earnings in the fourth quarter soared 29 percent from a year earlier, and the Chase retail banking unit's earnings rose 5 percent despite sharply higher credit losses, while retail bank revenue jumped 29 percent.
Dimon's strategy of slashing costs and investing heavily in technology and core businesses "appears to be paying off," The Wall Street Journal says.
His cautious tone while announcing solid numbers - JPM shares rallied some 7 percent as of noon Wednesday, while the overall stock market was mixed - echoes the tack taken by Wall Street pace-setter Goldman Sachs when it released strong fourth-quarter results a month ago. At the time its CFO, David Viniar, said in a conference call that Goldman was cautious about the "near-term outlook" for its business.
Wells Fargo's CFO likewise sounded glum Wednesday, even as his bank's share price rallied following its fourth-quarter results. "The prudent thing to assume is that the environment will be as challenging in 2008 as it has been recently, and consequently we'd expect higher (credit) losses in 2008," said the CFO, Howard Atkins, as quoted in the Journal.
Net income at the San Francisco-based bank dropped 38 percent to $1.36 billion, or 41 cents per share. A $1.4 billion reserve for credit losses on home equity loans cut earnings by 27 cents a share.