JPMorgan Chase & Co. (JPM) is slowly realizing the benefits of an improving economy, but that improvement is showing up so far not as increased business but as less need to prepare for disaster, its management said. Real gains are still ahead as the economy fully heals.
JPMorgan Chase & Co. is global superbank, with $2.3 trillion in assets as of the end of 2011. It engages in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, asset management and private equity.
It operates as J.P. Morgan on the investment side and as Chase for its banking customers.
The bank’s management warns that 2011 was rough for the entire industry, due in part to natural disasters in Asia and the European debt crisis, as well as rising oil prices.
Nevertheless, a strengthening U.S. economy offers a glimmer of hope. “The credit environment improved as consumer and wholesale delinquencies decreased and lending for a broad range of purposes accelerated,” management told investors.
In addition, “the U.S. job market continued to improve, with layoffs easing, employment expanding steadily, and unemployment falling. At the same time the financial health of the business sector, which was already strong, continued to improve.”
Nevertheless, the bank is concerned about raft of regulatory actions coming down the pike from Washington, including the Dodd-Frank Act, the Volcker Rule on proprietary trading, and the eventual implementation of President Obama’s Consumer Financial Protection Bureau.
JPMorgan Chase reported full year 2011 record net income of $19 billion, or $4.48 per share, on net revenue of $97.2 billion. Net income increased by $1.6 billion, or 9 percent, compared with net income of $17.4 billion, or $3.96 per share, in 2010.
Return on equity for the year was 11 percent, compared with 10 percent for the prior year.
Sounds like good news, but JP Morgan said that the increase in net income was largely driven by less need to cover credit losses. That in turn was the result of better consumer portfolios, the bank said.
In short, net revenue fell as interest declined but the firm needed to worry less about their customers’ ability to pay back loans, so it set aside less money in its rainy day fund.
Analysts are generally bullish on JPM, holding mostly neutral to buy recommendations. Keefe Bruyette & Woods rates the stock at outperform, as do the analysts at RBC Capital Markets and Oppenheimer.
“JPM is more attractively priced in relation to its true value than all but a few of the stocks in its industry,” EVA Dimensions analysts said in a recent report on the stock.
JP Morgan next reports on April 13.
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