JPMorgan 4Q Profit Falls 34 Percent

NEW YORK — JPMorgan Chase & Co. said Wednesday its fourth-quarter profit fell 34 percent after its exposure to subprime mortgages _ though much smaller than at banking peers like Citigroup Inc. _ devalued its portfolio by $1.3 billion.

CEO Jamie Dimon also attributed the profit decline at the nation's third-largest bank by market capitalization to worse-than-expected results in home equity loans.

Banks in the United States and around the world have been struggling with rising defaults on mortgages _ and now other loans, too, such as credit cards and auto loans. As banks have gotten more stringent in their lending practices, the economy has slowed, lifting the unemployment rate.

In anticipation of more problems with U.S. consumers' ability to pay back their loans, JPMorgan boosted its provisions for loan losses by $2.54 billion. That boost was higher than the $1.79 billion added during the third quarter and the $1.13 billion added in the fourth quarter a year ago.

Deterioration in subprime and home equity lending sent JPMorgan's net income down to $2.97 billion, or 86 cents a share, in the October-December period, from $4.53 billion, or $1.26 a share, in the same period a year earlier.

Revenue rose to $17.38 billion from $16.19 billion the prior year.

Analysts polled by Thomson Financial, on average, predicted higher fourth-quarter earnings of 93 cents per share, but on lower revenue of $17.05 billion.

JPMorgan's shares rose $1.74, or 4.5 percent, to $40.91 in late morning trading Wednesday. Its shares had fallen about 5 percent during the fourth quarter, and have traded in a 52-week range of $38.54 to $53.25.

Exposure to subprime mortgages _ in loans, bonds and CDOs _ is now at $2.7 billion, while exposure to leveraged loans fell to $26.4 billion as of Dec. 31 from $40.6 billion as of Sept. 30. But meanwhile, consumer credit losses in all areas are increasing, and JPMorgan expects them to keep climbing.

"Where home prices are down, delinquencies and chargeoffs are going up," Dimon said during a conference call with analysts, referring to auto loans, home equity loans, subprime mortgages and credit cards.

"JPMorgan is exiting one set of problems and write-downs in one part of the company but now must face more significant issues in the other half," Deutsche Bank analyst Mike Mayo wrote in a note.

The investment bank's profit plunged 88 percent to $124 million, and the card services' segment's profit fell 15 percent to $609 million as JPMorgan socked money away in preparation for rising default and delinquency rates in credit cards.

Also, the corporate business fell, due mostly to the effect of a $633 million gain during the fourth quarter of 2006 from the sale of some trust businesses.

So far, the banking industry has revealed about $65 billion in writedowns for the fourth quarter _ a figure that could climb higher as more results pour in over the next couple weeks. That's more than Bill Gates is worth, higher than the gross domestic product of Bangladesh, and equivalent to nearly 3 percent of the entire U.S. housing market.

JPMorgan is better positioned than most other banks, and many of its operations are performing well.

Commercial banking profit rose 13 percent to $288 million, Treasury and security services profit rose 65 percent to a record $422 million, and asset management profit rose 29 percent to a record $527 million.

Retail financial services edged up 5 percent to $752 million as improvements in mortgage banking, in a move that seems counterintuitive, offset weakness in auto lending and regional banking.

Citigroup _ the nation's largest bank by assets, but now the second-largest by market cap _ was not as well prepared as JPMorgan. On Tuesday, Citigroup posted a loss of $9.83 billion, after writing down $18.1 billion due to its huge losing bets on mortgage-backed bond products called collateralized debt obligations.

Citi has had to find $20 billion in cash from investors, mostly foreign governments, in return for stakes in the company. It also slashed its dividend and cut 4,200 jobs in the fourth quarter, after announcing 17,000 layoffs last spring.

JPMorgan cut several hundred jobs during the fourth quarter in its investment bank, card segment, commercial banking business and corporate unit, but over the course of 2007 added a net 6,000 jobs.

For the full year, JPMorgan's net income in 2007 was a record $15.4 billion, or $4.38 a share, on record revenue of $71.4 billion.