JPMorgan Chase (NYSE:JPM) reported fourth-quarter earnings this morning, the first big bank to do so. Overall, they were fantastic -- a $3.3 billion, or $0.74-per-share, profit on revenue of $25.2 billion. For full-year 2009, net income was $11.7 billion, or $2.26 per share. Not bad for one of the deepest recessions in decades.
But before declaring victory, I always like to dig into the earnings supplemental and find out exactly where the income came from. When broken out by segment, here's how it looked last quarter:
|
Segment |
Q4 Net Income |
|---|---|
|
Investment banking |
$1.9 billion |
|
Retail financial services |
($399 million) |
|
Card services |
($306 million) |
|
Commercial banking |
$224 million |
|
Treasury and securities services |
$237 million |
|
Asset management |
$424 million |
|
Corporate/private equity |
$1.2 billion |
|
Total |
$3.3 billion |
Ah … just like every quarter of the past year, the money's flowing heavily in investment banking and corporate (essentially trading), while traditional commercial banking segments are still a mess.
To show where exactly the investment banking segment is pulling it in, we can dissect that segment further. Since JPMorgan doesn’t break out the net income, here is a breakdown of the $4.9 billion revenue that led to the $1.9 billion in investment banking net income:
|
Segment |
Q4 Revenue |
|---|---|
|
Advisory |
$611 million |
|
Equity underwriting |
$549 million |
|
Debt underwriting |
$732 million |
|
Fixed-income markets |
$2.7 billion |
|
Equity markets |
$971 million |
|
Credit portfolio |
($669 million) |
|
Total |
$4.9 billion |
Note how incredibly important the fixed-income markets line is.
Look at it this way: Investment banking accounts for 58% of net total income, and fixed-income accounts for 55% of investment banking revenue. Fixed-income revenue was down by almost half compared with the previous three quarters, but it's still a huge contributor to the bottom line.
Digging deeper into the credit quality of commercial banking, here's what you'll find:
|
Segment |
Q4 2009 |
Q3 2009 |
|---|---|---|
|
Net charge-off rate |
1.92% |
1.11% |
|
Allowance for losses/average loans |
3.03% |
2.95% |
|
Nonperforming loans/average loans |
2.80% |
2.21% |
And for credit cards …
|
Segment |
Q4 2009 |
Q3 2009 |
|---|---|---|
|
30-days+ delinquent |
6.28% |
5.99% |
|
90-days+ delinquent |
3.59% |
2.76% |
|
Net charged-off rate |
9.33% |
10.30% |
Bottom line
These results are good, but need an important caveat: Capital markets are extremely strong, while traditional lending remains quite bad. This is exactly why Goldman Sachs (NYSE:GS) has done extremely well, JPMorgan has done pretty well, and Citigroup (NYSE:C) and Bank of America (NYSE:BAC) have done not so well over the past year. Banking results have tended to track the segmental mix of a company's balance sheet more than they have the skill and expertise of that bank.
