By Elizabeth Hester and David Mildenberg
Jan. 16 (Bloomberg) -- JPMorgan Chase & Co. and Wells Fargo & Co., two of America's biggest banks, reported better fourth- quarter earnings than investors estimated as the companies limited losses from the mortgage market.
JPMorgan, the third-largest U.S. bank by assets, said today that profit fell 34 percent to $2.97 billion, or 86 cents a share, and No. 5 Wells Fargo reported that net income dropped 38 percent to $2.18 billion, or 64 cents. JPMorgan's subprime writedown of $1.3 billion was smaller than analysts predicted and Wells Fargo's profit exceeded estimates. Both companies gained in New York trading.
``They have been able to skirt around some of the bigger problems affecting other financial companies,'' said Peter Dunay, investment strategist at Leeb Capital Management in New York. His firm manages $160 million, including Wells Fargo stock. ``Investors are starting to migrate to the stronger names.''
While JPMorgan's profit decline was the first since Jamie Dimon became chief executive officer in 2005, the New York-based company's subprime-related losses were a fraction of the $18.1 billion reported yesterday by Citigroup Inc., the largest U.S. bank and Dimon's former employer. Dimon and Wells Fargo CEO John Stumpf both expect credit-market losses to increase in 2008.
JPMorgan gained 5.8 percent to $41.43, pushing its market valuation above Citigroup, at 4 p.m. in composite trading on the New York Stock Exchange. San Francisco-based Wells Fargo advanced 3.3 percent to $27.37.
``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,'' Dimon said in a statement.
JPMorgan's revenue climbed 7 percent to $17.4 billion. Full year profit rose 6 percent to $15.4 billion on record net revenue of $71.4 billion.
Dimon said on a conference call with analysts that he isn't predicting a U.S. recession, though credit costs will increase as the economy weakens. The bank forecast credit-card charge-offs would be about 4.5 percent for the first half of the year, Chief Financial Officer Michael Cavanagh said on the call.
Net income at the investment-banking division fell 88 percent in the quarter as credit-market turmoil reduced revenue from debt underwriting 39 percent. The retail bank's profit climbed 5 percent to $752 million, driven by increases in mortgage banking.
At Wells Fargo, revenue increased 8.5 percent to $10.2 billion. The bank said the provision for future loan losses almost tripled to $2.6 billion.
Net charge-offs, the cost of bad loans that won't be fully repaid, jumped to $1.2 billion from $892 million in the third quarter. Charge-offs for consumer loans, which include credit cards and automobile financing, rose 34 percent from the preceding quarter to $955 million.
JPMorgan lost 14 percent of its market value in the past 12 months, compared with 52 percent at New York-based Citigroup and 28 percent at Charlotte, North Carolina-based Bank of America Corp. Wells Fargo lost 24 percent.
The fourth quarter may be the worst earnings period for the financial industry since the Great Depression. Analysts estimate Merrill Lynch & Co., the biggest U.S. brokerage, will report a record loss tomorrow of more than $3 billion after writing down the value of mortgage-related securities.
Bank of America, the second-largest U.S. bank by assets after Citigroup, may report its biggest profit decline since its formation in 1998 from the merger of BankAmerica and NationsBank.